Debtor days (also called days sales outstanding, or DSO) is the average number of days between raising an invoice and receiving the cash. A company with high debtor days is effectively lending money interest-free to its customers for longer than necessary, which creates a working capital drain.
How to calculate debtor days
The standard formula is: (trade debtors ÷ annual revenue) × 365. For example, a business with £150,000 of outstanding trade debtors and £1.2 million of annual revenue has debtor days of 45.6 — meaning it takes roughly 46 days on average to collect a payment. Some businesses use a rolling 90-day revenue figure rather than the full year for a more current snapshot.
What a high debtor days figure means
An elevated figure compared with your stated payment terms suggests customers are paying late, credit control is not being enforced, or payment terms have crept out informally. Any of these indicate a working capital problem in the making. A lender reviewing your accounts will compare debtor days against your stated payment terms and sector norms. A sudden spike from one period to the next can be a red flag indicating a problem customer or a deterioration in credit control.
Reducing debtor days
- Invoice promptly and accurately — errors delay payment
- Set clear payment terms from the outset and state them on every invoice
- Follow up overdue accounts on a fixed schedule rather than ad hoc
- Consider early-payment discounts for customers who settle quickly
- Use a credit-checking service before extending credit to new customers
We lend only to UK limited companies and LLPs, and the loan is to the company with no director personal guarantee. As business finance outside the consumer-credit regime, it is not covered by the Financial Ombudsman Service or FSCS.
See also: What is working capital and why does it matter?, What is factoring and how does it work for businesses?.