DebtorDays

DebtorDays

What are “Debtor Days”
1) The time a business takes to get its customers to pay is called Debtor Days
2) In most businesses the customers have a credit period of let’s say 30 days
3) Businesses usually do not pay on delivery
4) How does then one calculate Debtor Days
5) Let’s say a business usually receives Rs 100 lac from its clients in 365 days
6) Let’s say current outstanding is 10 lac
7) Then how many days it will it take to receive the Rs 10 lac is called Debtor Days
😎 So if the business does Rs.100 lac credit business in 365 days, it means that it will receive Rs 10 lac in
(10/100)x365 days
9) Which is 36.5 days
10) Obviously if Rs100 lac of credit business is done in 365 days, then 10 lac (current outstanding) which is 10% of total credit business should take 10% of the usual annual credit time (365 days) which turns out to 36.5 days
11) So if the usual credit terms is 30 days then we can say this business isn’t collecting fast enough
12) Any business that collects faster is more “Cash Rich” and can take more advantage of opportunities that show up
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