Creditor Days Calculator

The creditor days also known as a financial term - days payable outstanding (DPO) is a ratio that shows the average number of days a company takes to pay its bills and invoices to its creditors. It is generally calculated on a quarterly or yearly basis. The ratio indicates how well a company's cash outflow is managed.

Creditor Days Calculator
Creditor Days Calculator Results
Creditor Days
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Used Creditor Days Ratio to balance your company's short-term cash flow

Creditor Days Calculator. This image provides details of how to calculate the creditor days using a calculator and notepad. By using the credit finance formula, the Creditor Days Calculator provides a true calculation of the average number of days a company takes to pay its bills and invoices to its creditors.

Increasing profitability of a company is a laborious job. Besides managing everything, it involves the management of appropriate cash flow which is as important as any other basic operations of a company. Every company has creditors, they can be vendors, other companies or suppliers. We all know that creditors need to be paid, but the key is to know 'when' they should be paid in order to better manage the internal cash flows of the company.

The creditor days calculator

The creditor days calculator, designed by iCalculator is a tool that makes your calculations simpler. You just need the following details to do the creditors day calculations online:

  • Trade creditors of Payables = Enter the yearly payable amount to creditors.
  • Cost of Sales = Total cost of all the products that are sold in a year.

On the basis of your inputs, the calculator will provide you with the total creditor days. This number defines the total number of days your company takes to pay its creditors. Using the Creditor can facilitate you in many ways, like:

  • You can use the results obtained from the calculator to manage cash outflow of your company.
  • The calculator is very easy to use, it requires just a few inputs to provide you with important data that can be saved for future references.
  • It can also be used to compare the creditor days of the same company on a historical basis.
  • Comparison can also be made by other companies, given they belong to the same industry.

To calculate creditor days you can use the following formula:

Creditor Days = (Accounts payable x Number of Days) / COGS

Where:

  • Accounts Payable is the amount owed by a business to its suppliers or vendors for the purchases made on credit. This is considered as a liability in the balance sheets.
  • COGS = Cost of Goods Sold - COGS defines the costs to a company for the production/manufacturing of all the goods sold in a particular period of time. In the case of retail business this can be a purchase cost of the products sold.
COGS = Beginning Inventory + Purchases - Ending Inventory

The number of days in a period is generally taken as 365 for a year. The method takes account of the average per day cost to the company for manufacturing the saleable products.

The advantages of using the creditor days ratio

In general, an inventory, utilities, and other necessary services are acquired on credit. This results in 'accounts payable' which is a company's obligation to pay off its short-term liabilities. In addition to the amount, the day a company takes to pay its accounts payable are important as well. The creditor days ratio attempts to measure this average time. These calculations can be useful in many ways:

  • Companies that have a high ratio of creditor days can use this cash for short term investments.
  • Companies that have a rather small creditor days ratio can consider raising the ratio in order to get the benefits of high ratio.
  • The results of the calculations will make you aware if there is an imbalance in your company's cash outflow and inflow. For example, a company might be paying its creditors in 30 days, but getting cash from its customers in 60 days, this can cause a frequent cash crunch.
  • The creditor days ratio is helpful in maintaining balance in the outflow with comparison to its competitors. Your company's creditors days ratio might be higher than the other companies, but you might be losing the suppliers because other companies are paying early. On the other hand, if you are paying suppliers too quickly, you will lose the time value of money.

Conclusion

Creditor days ratio is useful in comparing the relative strength between companies, there is no exact indication of a healthy creditor days ratio. The creditor days vary widely, comparatively large companies may be able to bargain for higher creditor days without having to lose the supplier due to high demand they create.

The creditor days ratio makes a great tool for clear insight of your finances, when used with accurate dates and results applied with considered insight.