Online Calculators since 2009
Debtor days also known as debtor collection period measures the average number of days it takes to collect payments after sales have been made. It is generally determined on a monthly, quarterly and/or annual basis.
A business might suffer a loss, not because it is not making enough sales, but simply because of the lack of debt management. The Debtor days ratio is a tool that will help you determine the average number of days it is taking for your company to collect its receivables.
Due to the cash value in any business, it becomes essential to collect receivable as soon as possible. If cash is collected quickly it can be turned it into an investment to generate more revenue.
The following formula is used to calculate debt days:
The debtor days ratio shows the importance of 'time value of money'. The time spent waiting for the money to be collected is the money wasted. This means that if you receive a payment today, you can reinvest it today, and start making profits immediately, rather than receiving the same amount on a later date.
A high "debtor days ratio" tells you that a company is selling its product on credit and taking a long time to collect its receivables. This may lead to cash flow problems.
On the other hand, a low value of debtor days indicates that a company takes fewer days to collect its payments. It is worth noting that the debtor days ratio can provide an interesting insight into a company's cash flow.
The following entries are required for the calculation:
On the basis of the above entries the calculator will provide you with the debtor days; the number of days it takes for your company to turn its sales into cash. It is an online tool that can support your business in many ways:
Additionally you can use the debtor days ratio to check many factors that impact a company's financial condition, such as:
Like any other metrics that are used to assess the efficiency of a business, Debtor days ratio also comes with some limitations, the following should be noted when weighing the ratio calculated against other quantified components of the company performance:
Despite the considerations that can distort the ratio, the debtor days ratio provides a really helpful insight when considering debt management when used carefully along with other available metrics to gauge the business efficiency.
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