Debtor Days: measure how long customers take to pay

Debtor days is a signal, not a promise

The usual calculation is: average trade receivables ÷ credit sales × days in the period. Use credit sales only if that is what the receivables balance relates to; mixing cash sales into the denominator can make the result look better than the credit-control position. Compare like with like and use the same period each time.

A lower number is not automatically better if it comes from turning away suitable customers or asking for payment before a service can reasonably be delivered. The useful question is whether actual collection timing matches the terms, the cash forecast and the risk you agreed to take. Review the largest balances and the oldest due invoices alongside the average.

Separate the contract date from the cash date

An invoice with ‘30 days’ printed on it does not necessarily mean cash arrives 30 days after delivery. British Business Bank guidance notes that some businesses pay 30 days after month end, and advises agreeing the exact expected date with the customer. Record that specific date in the cash forecast, then replace it with the actual cleared receipt when it arrives.

For commercial transactions, GOV.UK says an agreed payment date must usually be within 30 days for public authorities or 60 days for business transactions. A longer business-to-business period can be agreed only if it is fair to both businesses. Where no date is agreed, the statutory position says payment is late 30 days after the customer receives the invoice or the goods/services are supplied, whichever is later. These rules do not replace checking your contract and taking appropriate advice for a dispute.

Build credit control into the delivery process

Before accepting a material credit order, decide who is legally buying, who approves the work, whether a purchase order is needed and who in accounts payable processes the invoice. Confirm payment terms in writing. On completion, submit an accurate invoice promptly with the agreed purchase-order reference, payment details and due date. Errors and missing references can delay an otherwise willing payer.

Review an aged-debt list at least weekly: current, due soon, overdue and disputed. Work from the largest and oldest invoices first, but do not wait for a dashboard to turn red before checking a key receipt. A courteous reminder before the due date, followed by a documented escalation once overdue, is usually easier to manage than a sudden demand after several months.

Escalate proportionately and keep evidence

If a payment is overdue, first verify the invoice, contractual due date and delivery evidence. Contact the customer’s accounts-payable team as well as the operational contact, ask whether anything is missing, and record the answer and a revised payment date. If the matter is unresolved, use your documented escalation process and consider independent legal advice where appropriate.

The Office of the Small Business Commissioner may be able to assist an unresolved payment dispute between a small business and a larger customer, but its guidance says it cannot help once legal action has started. It recommends retaining evidence such as a final-warning letter and correspondence showing attempts to resolve the issue. This guide is not legal advice and does not tell you whether to pursue a claim.

Use a dispute and concentration log

Average debtor days cannot explain why a particular invoice is late. Add a dispute status, owner, promised payment date, next contact and evidence required to the aged-debt list. Keep disputed and undisputed amounts separate so a genuine query is not treated as a routine chase.

Review customer concentration alongside ageing. A single overdue customer may create more risk than several smaller late invoices, even when the overall average looks acceptable. Decide whether new work needs a deposit, staged billing, a credit limit or approval before further delivery.

Do not treat a promise to pay as cleared cash. Update the rolling forecast with the expected date and a downside date, then use the documented escalation route when a payment remains unresolved.

What to do, in order

1. 1

   List every unpaid credit invoice

   Record customer, value, invoice date, contractual due date, expected bank date, dispute status and next action.

2. 2

   Calculate a consistent baseline

   Use trade receivables, credit sales and the same period length each month or quarter.

3. 3

   Confirm the exact payment route

   Check the payer, purchase-order process, accounts-payable contact and any approval requirement before invoicing.

4. 4

   Run a dated reminder sequence

   Send a courteous pre-due reminder where appropriate, follow up promptly when overdue and document every contact.

5. 5

   Update the cash forecast and escalate

   Move receipt dates when evidence changes; seek appropriate support early if delayed debt threatens obligations.