Sales are on the up, but cash in from sales is going down? You need to look at your customer payment days (debtor days) and your supplier payment days (creditor days).

Customer payment days (debtor days) is the average number of days a business takes to collect a payment from its customers. Supplier payment days (creditor days) is the equivalent.

The Flow Actionfeed headlines these important KPIs in the left panel, recalculating the figure with every sync. Put simply, you want your customer payment days (how long it takes a customer to pay you) to be fewer than your supplier payment days (how long it takes you to pay your suppliers).

What are debtor days calculations?

We focus more on customer payment as the less cash your business has available to it, the less able you are to invest in growth opportunities or make committed payments. You do not control when your customers pay you in the same way as when you pay suppliers.

There are many methods of calculating debtor days or creditor days manually:

  • The count back method (which is too complicated to list here).

  • Year end method: Debtor Days = (accounts receivable/annual credit sales) * 365 days). These manual methods are not required when using Flow.

You’ll never need to perform these calculations if you use Flow.

Flow is more accurate as it aggregates every invoice that a customer pays.

In the customer detail area you’ll find how each customer is tracking:

  • Recent payments over the last 3 and 10 invoices. It will also tell you if this is increasing or decreasing at the moment.

  • The next thing it does is assess the payment trend this year versus last year, if we have the data. They may have been great at paying last year, but this year the trend has changed for instance.

  • The calculation in the customer table is the average payment days over the last 90 days. It will give you a quick red, amber, green colour indication and is a fully rankable number. Regularly assess every customer’s payment days against the rest.

The impact of not being on top of this number.

Just remember, if you have high customer payment days (debtor days), your business has less cash available to use. This might limit the investments you can make which could stunt growth. You’re also more likely to have to go into your overdraft or to take out a loan in order to pay your obligations.

Payment days vs credit terms.

It’s worth comparing how your customer payment days (debtor days) compare to your credit terms (payment terms). If you have terms of 30 days and your debtor days are 60, your customers are taking twice as long as you’ve agreed with them to pay you.

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