Debtors’ Days Outstanding- What's It Mean?
Debtors’ days outstanding is one of the most important key performance indicators available to a business manager. The calculation should be prepared on a monthly basis and the resulting figure compared to budget estimates. Debtors’ days outstanding is calculated as follows:
Credit Sales 365 = average daily sales
The actual debtors’ balance is divided by the average daily sales to give debtors’ days outstanding.
Example:
Credit sales $2,382,000
365 = $6,526
Debtors’ days outstanding $327,000
Divided by average daily sale $6,526 = 50.1 days
If your business is trading on 30 days payment terms, this means you are making available to your customers an extra $131,173 worth of credit.
If you would like to have a discussion on how to reduce the amount of money owed to you by your customers, so you are no longer acting as the banker, or a copy of a debtors’ days outstanding chart, please contact us.
