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Debtor Days Formula:
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Debtor Days, also known as Days Sales Outstanding (DSO), is a financial ratio that measures the average number of days it takes a company to collect payment from its customers after a sale has been made. It indicates the efficiency of a company's accounts receivable management.
The calculator uses the Debtor Days formula:
Where:
Explanation: The formula calculates how many days' worth of sales are tied up in accounts receivable at a given point in time.
Details: Monitoring debtor days helps businesses assess their credit and collection efficiency. A lower number indicates faster collection of receivables, which improves cash flow. A higher number may signal collection problems or overly generous credit terms.
Tips: Enter accounts receivable amount in dollars, total sales in dollars, and the number of days in the period you're analyzing. All values must be positive numbers.
Q1: What is a good debtor days ratio?
A: This varies by industry, but generally, a lower ratio is better. Compare your ratio to industry averages and your company's historical performance.
Q2: How often should I calculate debtor days?
A: Most businesses calculate it monthly as part of their financial reporting cycle to monitor trends over time.
Q3: What if my sales are seasonal?
A: For seasonal businesses, it's better to use a rolling average or compare to the same period in previous years for more accurate analysis.
Q4: How can I reduce my debtor days?
A: Strategies include offering early payment discounts, implementing stricter credit policies, improving invoicing processes, and following up on overdue accounts more aggressively.
Q5: Does this calculation work for service businesses?
A: Yes, the formula works for both product-based and service-based businesses, as long as you have accounts receivable and sales figures.