You will also see it called the debtor collection period, or the receivables collection period in accounts that use IFRS terms. HMRC's Enquiry Manual uses the same ratio, under the name average collection period, when it examines business accounts. A rising figure means more of your cash is sitting with customers.
How to work out debtor days
Debtor days = trade debtors ÷ credit sales × 365
Trade debtors come from the balance sheet, where they sit under debtors in current assets, and sales come from turnover in the profit and loss account. Leave out other debtors, prepayments and amounts owed by group companies, because they did not come from sales to customers.
The ratio is the same as days sales outstanding (DSO). The difference is in how it is used. In practice DSO is usually tracked monthly from the sales ledger, while debtor days is often worked out from the annual accounts, so it reflects the balance on a single date.
Debtor days calculation with a worked example
Example. A UK distributor sells to business customers on 30-day terms. Its accounts for the year to 31 December show the figures below, which are illustrative.
| Item | Amount |
|---|---|
| Turnover, excluding VAT | £16,000,000 |
| Cash sales at the trade counter, included in turnover | £1,400,000 |
| Credit sales | £14,600,000 |
| Trade debtors at 31 December, including VAT at 20% | £2,280,000 |
The quick calculation takes the published figures as they stand. £2,280,000 ÷ £16,000,000 × 365 = 52.0 days. That result hides two errors that pull in opposite directions.
- Remove cash sales. Trade counter sales never become debtors, so including them understates the collection period, as HMRC's manual also points out. £2,280,000 ÷ £14,600,000 × 365 = 57.0 days.
- Remove VAT. Trade debtors include VAT, but turnover excludes it under the Companies Act 2006 definition of turnover. £2,280,000 ÷ 1.2 = £1,900,000, and £1,900,000 ÷ £14,600,000 × 365 = 47.5 days.
The corrected figure is 47.5 days. Strip VAT only from debts that carry it. If part of your sales are exports or zero-rated, divide only the standard-rated share of trade debtors by 1.2.
How to read debtor days against your credit terms
Compare debtor days with the terms you give. At 47.5 days on 30-day terms, the distributor's customers pay about 17.5 days late on average. If your terms run from the end of the month, such as 30 days end of month, invoices fall due about 45 days after the invoice date on average, so 45 debtor days would mean customers pay roughly on time.
Where no payment date is agreed, UK law treats a business payment as late 30 days after the customer receives the invoice or you deliver the goods or services, whichever is later. Terms should usually be no longer than 60 days between businesses and 30 days for public authorities, as the government guidance on late commercial payments explains. Comparisons with other firms are harder, because collection periods vary widely between trades.
A single figure also hides who is late. Your aged debtors report shows which customers and invoices make up the gap, and that is where credit control work should start.
Limits of debtor days
- One date. Year-end trade debtors show a single day. A year end in your busiest month makes debtor days look worse, and a collection push just before it makes them look better than the rest of the year.
- Factoring and invoice discounting. Debts sold to a factor without recourse usually leave the balance sheet, so debtor days fall even though customers pay no faster.
- Bad debt provisions. Published trade debtors are shown after provisions, so a large provision lowers debtor days.
- Averages. One large customer paying in 120 days can hide behind a reasonable average.
Sunbay connects to your accounting system or ERP and follows up each invoice on a schedule you set. It sends reminders by email and SMS, makes AI voice calls on invoices that stay unpaid and issues interest notes and demand letters when a debt runs late. Every customer reply and promise to pay stays next to the invoice, and chasing stops once the payment shows up in your accounting system. See how Sunbay runs collections from the first reminder to the final demand.
Frequently asked questions
How do you calculate debtor days?
Divide trade debtors by credit sales for the year and multiply by 365. With trade debtors of £1,900,000 excluding VAT and credit sales of £14,600,000, the result is £1,900,000 ÷ £14,600,000 × 365 = 47.5 days.
Are debtor days the same as DSO?
Yes. Both divide receivables by credit sales and multiply by the days in the period. Debtor days is the usual UK name, and DSO is the usual US name.
What is a good number of debtor days?
A figure close to your average credit terms. On 30-day terms, debtor days in the low 30s mean customers pay close to the due date on average, while 50 days means they pay about three weeks late.
Should debtor days include VAT?
Use the same basis for both figures. Either divide standard-rated trade debtors by 1.2 or add VAT to credit sales. Setting debtors that include VAT against turnover that excludes it overstates debtor days by up to a fifth.
.svg)