Business, Legal & Accounting Glossary
A ratio used to work out how many days on average it takes a company to get paid for what it sells. Calculated by dividing the figure for trade debtors shown in its accounts by its sales, and then multiplying by 365.
For example, a company with debt of £700,000 and sales of £12m, takes an average of just over 21 days to collect its debts. The lower the number of debtor days, the better.
An abnormally high figure suggests inefficiency, potential bad debts, window-dressing of the sales figures, or deliberate bullying by large customers trying to improve their own cash management.
Cash businesses, including most retailers, should have very low debt collection multiples, because they get their money at the same time as they sell the goods.
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This glossary post was last updated: 26th April, 2020 | 5 Views.