Average Debtor Days: Indicate how many days (on average) the debtors owe you.

Formula: (Total Debtors / Total Revenue) * 365days

Importance: An indicator of how fast/slow a debtor pays you back & also may indicate potential bad debts problems.

Note:

1. What’s good and bad will depend very much on the industry you’re in and the type of sales you do. Ideally, as you improve your collection processes, you’ll see the number decrease.
2. Potentially you have low or Zero value for this but your cash reserves are very low as well… erm…. this means you have PROBLEMS. Talk to sifu Andrew or myself 🙂

Average Creditors Days: Indicate how many days (on average) you pay/owe your creditos.

Formula: (TotalCreditors / Total COGS) * 365days

Note:

1. This also depends on the industry you are in.
2. Some may argue  there is no good or bad here. BUT if you owe your creditors/suppliers for a very long time, this could lead to higher price (which will reduce your profits) or worst still this supplier will stop doing business with you.
3. Even if you pay on time or even early, on paper they will say you will get prefential treatment, better pricing, may enjoy payment/early payment discount etc. BUT, let’s be realistic, in Malaysia, how often you see your supplier give you all of the above?

Next we shall learn about Cash Reserves KPI