Debtor Days

Debtor days measures the average time between issuing an invoice and receiving payment. It is calculated by dividing trade receivables (the total outstanding invoices owed to you) by annual credit sales, then multiplying by 365. The result tells you how many days, on average, your cash sits tied up in unpaid invoices rather than in your bank account. For project-based businesses - where costs are often paid ahead of customer payments - keeping debtor days low is directly tied to staying liquid and funding the next job.

How to Calculate Debtor Days

The formula is straightforward:

Debtor Days = (Trade Receivables ÷ Annual Credit Sales) × 365

For example, a business with $120,000 in outstanding invoices and $800,000 in annual credit sales has debtor days of 54.75 - meaning the average invoice takes just under 55 days to be paid. Only credit sales (invoiced orders, not cash transactions) should be included in the calculation. Including cash sales will artificially lower the figure and understate the real collection problem.

For a more current view, calculate monthly debtor days using:

Monthly Debtor Days = (Accounts Receivable ÷ Monthly Credit Sales) × 30

This version is useful for identifying short-term deterioration, such as a batch of large overdue invoices from a single customer dragging your figure up in a particular month.

What the Numbers Mean for Your Business

For small to mid-sized businesses, a debtor days figure below 30 is considered strong. Between 30 and 45 days is normal across most service and trade industries. Construction and wholesale businesses commonly run at 45 to 60 days due to longer payment terms and retention withheld from contractor payments. Above 60 days for businesses outside those sectors is a signal that credit control processes need attention.

The cash impact is concrete. A business doing $250,000 in annual credit sales and averaging 60 debtor days is effectively financing around $41,000 of outstanding receivables at any given time. Reducing that average by 15 days - to 45 days - releases approximately $17,000 into working capital without changing revenue at all.

The most direct levers for reducing debtor days are sending invoices the same day work is completed or a milestone is reached, setting written payment terms on every quote and order confirmation, and running a consistent chase sequence that starts before the due date rather than after. For project-based businesses, milestone invoicing - issuing invoices at defined completion points rather than waiting until project end - is the single most reliable way to keep debtor days under control.

Zigaflow tracks open invoices, overdue balances, and payment status against each job, and syncs directly with Xero, QuickBooks, and FreeAgent so your accounting records reflect payments in real time.