Debtor days and how to cut them

If your business sells on credit, debtor days are one of the most important numbers you can track. They tell you how long, on average, your money sits in your customers’ bank accounts instead of yours.

How to calculate debtor days

Debtor days = (amount owed by customers / annual credit sales) x 365

If customers owe you $120,000 and annual credit sales are $1,095,000, debtor days are about 40. On 30-day terms, that means customers are paying roughly ten days late on average.

Track it monthly. The trend matters more than any single reading.

Why it matters so much

Every day of debtor days is a day of sales tied up. In the example above, a day of credit sales is $3,000. Cutting debtor days from 40 to 30 frees about $30,000 in cash, permanently, without borrowing a dollar. As the business grows, the effect grows with it.

Ten practical ways to cut debtor days

1. Invoice the day the work is done. Every day you delay invoicing is a day added to the cycle.
2. Set clear terms up front on quotes, contracts and invoices.
3. Make paying easy: include bank details, PayID and card options, and a reference.
4. Send invoices to the right person. Larger clients often route invoices to accounts payable, not the person who ordered the work.
5. Remind before the due date with a friendly note a few days ahead.
6. Follow up the day after the invoice falls overdue.
7. Escalate in steps: email, call, formal letter, then stop further work.
8. Ask for deposits or progress payments on larger jobs.
9. Check new customers’ credit before offering terms.
10. Offer a small early payment incentive if it costs less than the funding it saves.

Need an answer this week? Send the 60-second enquiry now. Your details stay with one team and a real person picks it up.

Know who your slow payers are

An aged debtors report, which most accounting software produces, shows who owes what and for how long. Sort by age and focus on the oldest and largest balances first. Often a handful of customers account for most of the overdue money.

Age	Typical action
Not yet due	Reminder a few days before
1 to 14 days overdue	Email and phone call
15 to 30 days overdue	Formal reminder, pause new work
Over 30 days overdue	Final notice, consider escalation

When large customers set the terms

Some large customers simply pay on 45 or 60 days whatever your invoice says. The Payment Times Reporting Regulator publishes information on how large businesses pay small suppliers, which can help when negotiating. If you cannot shorten the terms, price them in, or use invoice finance to release most of each invoice soon after you raise it.

Measuring the payoff

Run your numbers through the working capital calculator before and after cutting debtor days. Seeing the cash released makes the follow-up calls feel far more worthwhile. If slow payers are already causing trouble, our page on slow-paying customers covers funding options for the gap.

Where to go from here

• Funding when customers pay slowly: When customers pay slowly, cash dries up even in a profitable business. How invoice finance, lines of credit and better terms can bridge the wait.
• Invoice finance: Invoice finance advances most of the value of unpaid invoices to business customers, so you are not waiting months for cash. How it works and who it suits.
• How much working capital does a business need?: How to work out how much working capital your business needs, using debtor, stock and supplier days, plus a buffer for surprises and growth.
• Invoice finance vs line of credit: Invoice finance vs line of credit: which suits slow-paying customers, growing sales or uneven cash flow, with costs, setup and flexibility compared.

A quick glossary

• Line of credit: an approved limit the business can draw, repay and draw again, usually paying interest only on the drawn balance.
• Working capital: the cash a business needs to keep running while money is tied up in stock and unpaid invoices.
• Invoice finance: funding that advances part of the value of unpaid invoices owed by business customers.
• Debtor days: the average number of days customers take to pay what they owe.

Questions to ask before you sign

• What will this cost in total, not just per week?
• Are there establishment, line or exit fees?
• Can the term be extended if a sale or refinance is delayed?
• Which assets or properties are being used as security?
• How quickly can the facility be closed if I no longer need it?

Where your accountant fits in

Before committing, run the plan past your accountant or bookkeeper. They can check that the amount matches the real need, that the repayments fit your cash flow forecast and that nothing in your tax position will cause a surprise. If property or guarantees are involved, everyone signing should understand what they are agreeing to, and some may want independent legal advice.

Key takeaways

• Debtor days = debtors / annual credit sales x 365
• Each day cut releases a day of sales in cash
• Invoice immediately and make paying easy
• Follow up before and right after the due date

How we work through it with you

You send a 60-second enquiry with the amount, the purpose and a few facts about the business. A real person reads it, usually the same business day, and calls to fill in the gaps. For unsecured options they will ask for recent business bank statements, which can normally be shared through a secure read-only link. For property-secured options they will ask about the property and what is owed on it, with no valuation needed. You then see the offer in plain terms, including the total cost, and decide whether to go ahead. A credit check happens only at that point. If something about your situation is unusual, say so early; it is far easier to plan around a known issue than a surprise.

A quick test before you borrow

Funding works best when three things are true: the need is specific, it is temporary or it pays for itself, and there is a clear source of repayment. If all three hold, the right loan can take real pressure off the business. If the business is losing money month after month with no change in sight, borrowing only postpones a harder decision, and we would rather say so than arrange a loan that makes things worse.

Getting your details together

You do not need a folder of financial statements to start an enquiry. For most unsecured and property-secured funding, these few items cover the essentials:

• Photo ID for each director or owner.
• Access to your business bank account for a secure statement link.
• Your latest BAS, if it is handy.
• Details of existing finance, including any daily or weekly repayments.
• For property-secured funding, the property address and current loan balance.

Getting the enquiry right

The enquiry asks for the amount, the purpose, how long you have traded, your monthly revenue, your credit history, your state and whether you own real estate. Each answer steers your enquiry towards the right option. Accurate answers let the first call move straight to solutions. Rounded-up turnover or a credit history that turns out to be different from the form means starting again, which costs everyone time.

Find out where you stand

If this sounds like your business, start the enquiry. It takes about 60 seconds and runs no credit check. Your details are not sprayed across the market; the team that reads your enquiry is the team that works on it. Please give real numbers rather than hopeful ones. A clear picture of turnover, credit history and property lets us point you to the right funding straight away.