Debtor days

 

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Debtor days

A ratio used to work out how many days on average it takes a company to get paid for what it sells. Calculated by dividing the figure for trade debtors shown in its accounts by its sales, and then multiplying by 365.E.g. A company with debtors of 700,000 and sales of 12m, takes an average 21.29 days to collect its debts.Obviously, the lower the number of debtor days, the better. An abnormally high figure suggests inefficiency, potential bad debts, window-dressing of the sales figures, or deliberate bullying by large customers trying to improve their own cash management. None of that is good news.Cash businesses, including most retailers, should have very low debt collection multiples, because they get their money at the same time as they sell the goods. The typical target for non-cash businesses will be 50-70 days.



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