Calculate Debtor Days Monthly

Debtor Days Formula:

\[ \text{Debtor Days} = \left( \frac{\text{Accounts Receivable}}{\text{Credit Sales}} \right) \times 30 \]

Debtor Days:

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1. What is Debtor Days?

Debtor Days, also known as Days Sales Outstanding (DSO), is a financial metric that measures the average number of days it takes a company to collect payment from its customers after a credit sale has been made. It indicates the efficiency of a company's accounts receivable management.

2. How Does the Calculator Work?

The calculator uses the Debtor Days formula:

\[ \text{Debtor Days} = \left( \frac{\text{Accounts Receivable}}{\text{Credit Sales}} \right) \times 30 \]

Where:

$ \text{Accounts Receivable} $ — Total amount owed by customers for credit sales ($)
$ \text{Credit Sales} $ — Total credit sales made during the period ($)
$ 30 $ — Standard number of days in a month

Explanation: The formula calculates how many days' worth of credit sales are tied up in accounts receivable at a given point in time.

3. Importance of Debtor Days Calculation

Details: Monitoring Debtor Days helps businesses assess their credit and collection policies. A lower number indicates faster collection of receivables, which improves cash flow. A higher number may signal collection problems or overly generous credit terms.

4. Using the Calculator

Tips: Enter the total accounts receivable balance and total credit sales for the period. Both values must be in dollars. Credit sales must be greater than zero for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Debtor Days ratio?
A: Ideal Debtor Days vary by industry, but generally, a lower number is better. Compare against industry averages and your company's credit terms.

Q2: Why multiply by 30 instead of 365?
A: This calculator uses 30 to provide a monthly calculation. For annual calculations, multiply by 365 instead of 30.

Q3: Should I use average accounts receivable?
A: For more accurate results, use average accounts receivable over the period rather than the ending balance.

Q4: What if my company has both cash and credit sales?
A: Only include credit sales in the calculation. Cash sales should be excluded as they don't create accounts receivable.

Q5: How often should I calculate Debtor Days?
A: Regular monthly calculation helps track trends and identify potential collection issues early.