The quick answer: debtor days (also called receivable days or DSO) shows how long, on average, your customers take to pay you. The formula is trade receivables ÷ annual credit sales × 365. If you sell 9,000,000 a year on credit and customers owe you 1,500,000, your debtor days are about 61 days. Banks compare that number with the credit terms you give, because it drives how much working capital finance you need.
To see how debtor days fit into your full working capital picture, try our free cash conversion cycle calculator.
Debtor days at a glance
| Item | What it means |
|---|---|
| Formula | Trade receivables ÷ annual credit sales × 365 |
| What it measures | Average number of days customers take to pay |
| Lower is usually better | Cash comes in faster, so less funding is tied up |
| Compare it with | Your credit terms, past years and similar businesses |
| Where banks use it | Working capital limits, drawing power and cash flow forecasts |
How to work it out
- Take trade receivables from the balance sheet: the amount customers owe you for goods or services already delivered. Leave out loans to directors, advances and other non-trade items.
- Take annual credit sales from the income statement. If you cannot split cash and credit sales, total sales is a common shortcut, but it makes debtor days look better than they are.
- Divide and multiply by 365. Receivables ÷ credit sales × 365 = debtor days.
- Use averages for a fairer view. If receivables swing a lot during the year, use the average of opening and closing receivables.
Worked example
A distribution business (invented example) has annual credit sales of 9,000,000 and closing trade receivables of 1,500,000. It gives customers 45-day terms.
- Debtor days: 1,500,000 ÷ 9,000,000 × 365 = about 61 days
- Gap against terms: 61 − 45 = 16 days slower than agreed
- Average credit sales per day: 9,000,000 ÷ 365 = about 24,660
- Cash freed if customers paid on time: 16 × 24,660 = about 395,000
That 395,000 is money the business is currently funding itself, often through an overdraft or running finance line. Collecting on time would reduce the borrowing need by roughly that amount.
How banks read debtor days
- Against your terms. Debtor days well above your stated credit terms suggest slow collections or disputes.
- Trend over time. Rising debtor days year after year is a classic early warning sign, even when sales are growing.
- The ageing report. Lenders often ask for receivables split into 0–30, 31–60, 61–90 and 90+ days. Old balances may be treated as doubtful and excluded when working out how much you can borrow against receivables.
- Concentration. If one or two customers make up most of the receivables, the bank will look closely at those customers too.
- The full cycle. Debtor days is one part of the cash conversion cycle: inventory days + debtor days − creditor days. Read our guide to the working capital cycle and inventory days for the other pieces.
Common mistakes
- Mixing in non-trade balances such as staff advances or related-party loans.
- Using a single month-end figure in a seasonal business, which can make debtor days look much better or worse than normal.
- Ignoring bad debts. Balances that will never be collected still sit in receivables until written off, and inflate the number.
- Comparing across industries. What is normal varies widely by sector and country, so compare with similar businesses.
Run your own numbers: use our free cash conversion cycle calculator to check your figures before you speak to your bank.
From the credit desk
What we look for when this comes up in a real credit file:
- We compare your debtor days with the credit terms printed on your invoices. If you sell on 30 days but collect in 75, that gap is the first question in the credit memo.
- Analysts age the debtor list. Balances older than 90 days are often excluded from the drawing power that supports a running finance limit, so old receivables cost you borrowing capacity, not just cash.
- A sudden drop in debtor days just before year-end, followed by a jump in the next quarter, is a red flag for window dressing. Consistency across periods matters more than one good number.
Worked example: Sales of PKR 120 million a year and debtors of PKR 30 million give 91 debtor days. Cutting this to 60 days releases about PKR 10 million of cash, which can be the difference between a limit increase and a decline.
Frequently asked questions
What is a good debtor days figure?
There is no single number. A useful test is whether debtor days are close to the credit terms you offer. If you give 30-day terms and debtor days are 32, collections are healthy; if they are 70, something needs attention.
Is debtor days the same as DSO?
Yes. Debtor days, receivable days and days sales outstanding (DSO) all describe the same idea. Some analysts use 360 days instead of 365, which makes a small difference.
How can a business reduce debtor days?
Invoice promptly, agree clear terms in writing, follow up overdue balances on a fixed schedule, and consider early-payment discounts. Credit checks before giving terms to new customers also help.
Why does the bank ask for a receivables ageing list?
It shows how much of your receivables is current and how much is old. Many lenders only count receivables below a certain age when setting a limit against them, and the cut-off varies by bank.
Sources and further reading
- State Bank of Pakistan: Laws and Regulations (Prudential Regulations)
- IFRS Foundation: IAS 7 Statement of Cash Flows
This article is general information only, not financial advice. Lending criteria vary by bank and country.
Related guides
- The Working Capital Cycle, Explained: How Much Cash Your Business Really Ties Up
- Inventory Turnover and Days Inventory: Formula and Worked Example
- Current Ratio vs Quick Ratio: Formulas, Example and How Lenders Read Them
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