In short
- Debtor days measures the average time between invoicing and being paid.
- Divide what you are owed by your sales for the period, then multiply by the number of days in it.
- Track the trend, not the absolute number. Rising debtor days is an early warning.
- The fastest lever is invoicing sooner, not chasing harder.
Debtor days is the average number of days between issuing an invoice and receiving the money. It is the single most useful number in a small service business, and almost nobody calculates it.
The debtor days calculation
Take what your clients owe you at the end of a period, divide by your sales for that period, and multiply by the number of days in the period.
| Example | |
|---|---|
| Owed at month end | R 128 000 |
| Sales for the month | R 190 000 |
| Days in the month | 31 |
| Debtor days | 128 000 ÷ 190 000 × 31 = 21 days |
Use figures excluding VAT on both sides, or including on both. Mixing them gives a number that looks fine and is wrong.
What it should be
There is no universal target, because it depends who your clients are. What matters is the comparison against your own terms.
- Below your terms: healthy. Clients are paying early or on time.
- Roughly at your terms: normal.
- Ten or more days above: your terms are decorative and your cash flow is funding your clients.
- Rising quarter on quarter: the important signal, whatever the absolute number.
Bringing it down
- Invoice the day the work completes. Invoicing at month end can add up to 30 days before the clock even starts.
- Land inside the client's payment run. Missing a cut-off by one day can cost a full month.
- Chase the day after due, not a week later.
- Take deposits so part of the money arrives before the work.
- Fix the process failures: missing PO numbers, wrong entity name, invoice sent to the wrong person.
The first is the largest and the cheapest. It costs nothing and it can move the number by a fortnight.
Track it monthly
One number, recorded once a month, in a spreadsheet. Twelve entries a year will tell you more about the health of the business than any amount of studying individual invoices.
Common questions
Should I include overdue invoices?
Yes. They are exactly what the measure is designed to surface.
What about a client who always pays at 60 days?
They will pull your average up permanently. Worth knowing, and worth deciding whether the work is priced for it.
Is this the same as an ageing report?
Related. Ageing shows which invoices are late. Debtor days shows the overall trend.
Knowing what is outstanding, and how old it is, is where this calculation starts.
Start invoicingDisclaimer: This content is for general information only and does not constitute legal, tax, accounting or financial advice. Always confirm important requirements with SARS, the relevant authority or a qualified professional.
