Debtor Days is a key indicator to follow, and it can tell us a lot about the payment patterns of our customers, and the overall market health, when looking back over time.

In principle, if your company Sales Payment T&C has a standard period of 30 days, then the collection period should be around 30 days as well.

So the Debtor Days indicator will show with clarity, how much longer it actually takes on average for your company to collect the money. We don't need to imply how critical this information is, and the fact that money is being collected has on the company's cash flow.

There are few established formulas differing only in their readability for a casual user, but [1] offers an easy way to calculate the indicator.

First, we compute at "Sales per day".

Sales per day = Total Annual Sales / 365

The indicator itself is also known as "Days Sales in Debtors" or "Days Sales Outstanding".

Debtor Days = Debtors / Sales per day 

As we have mentioned, the ideal is to have customers paying on time or as soon as possible. As nowadays, most larger companies require much longer outstanding periods for payments of up to 120 days.

Having a mix of customers, the reader can easily see that while it is easy to compute to figure, we need skill, and experience, looking also onto customer behaviour patterns.

We must build an understanding how this number could fluctuate over time and what the business should do about it.

In ProudNumbers, we calculate this number from the outstanding invoices data, and payment history. As ProudNumbers delivers all KPIs information in one place, in monthly/weekly/biweekly/quarterly/yearly, the software has always to look back 12 months into the historical records -e.g. looking across two financial years—the current one, and the previous year.

This way, the algorithm matches the theoretical calculation definition but also accommodates for real-life situations. This is where the computational power helps the human being, but interpreting eventual anomalies or trends is a task of making at Return on Capital.