Debtor days calculator with creditor and stock days

How to calculate debtor days

Debtor days, also called the debtor collection period or debtor turnover days (days sales outstanding, or DSO, in American usage), is the average number of days customers take to pay. The debtor days formula is:

Debtor days = trade debtors ÷ credit sales × 365

Worked through for a joinery firm with sales of £480,000 that is not VAT registered and is owed £64,000 at the year end: £64,000 ÷ £480,000 × 365 = 48.7 days. Use the number of days the sales cover, so a six-month period uses 182 or 183. Where the debtors moved a lot during the year, the average of the opening and closing balances gives a fairer figure: average debtors = (opening trade debtors + closing trade debtors) ÷ 2.

Should debtor days include VAT?

For a VAT-registered business, yes, it has to be allowed for. The trade debtors on the balance sheet include the VAT charged on each invoice, but turnover in the profit and loss account does not. Divide one by the other and debtor days come out too high: a fifth too high when every sale is standard-rated. The fix is to put both on the same footing, either by adding the VAT to the sales or by taking it out of the debtors; the answer is the same. With sales of £480,000 and debtors of £72,000 including VAT, the unadjusted figure is 54.8 days, and the adjusted one is £72,000 ÷ (£480,000 × 1.2) × 365 = 45.6 days. Zero-rated and exempt sales carry no VAT, so only the standard-rated share is grossed up. The same applies to creditors and purchases.

Calculating debtor days monthly: the count-back method

To measure debtor days at a month end, the count-back method works back through the months. Start with the debtors, including VAT. If they are more than the last month’s invoiced sales, count that month’s days in full and take its sales off; carry on to the month before; when the debtors left are less than a month’s sales, add that fraction of the month’s days. With debtors of £48,000 at 30 September and sales of £30,000 in September and £25,000 in August: September’s £30,000 covers its 30 days, leaving £18,000, which is 18,000 ÷ 25,000 = 0.72 of August’s 31 days, or 22.3 days. Debtor days are 52.3. The count-back calculator above does this for six months.

How to calculate creditor days

Creditor days, also called the creditor payment period or days payable outstanding (DPO), is the average time the business takes to pay its suppliers. The creditor days formula is:

Creditor days = trade creditors ÷ credit purchases × 365

Trade creditor days are best worked out on credit purchases, because cost of sales can include wages, depreciation and stock movements that never pass through trade creditors. When purchases are not to hand, cost of sales is the usual stand-in, and the calculator uses it unless you enter purchases. Allow for VAT in the same way as debtors. A creditor days figure well above the terms your suppliers set is a sign the business is stretching them, which can cost it goodwill and early settlement discounts.

Inventory days and stock days

Stock days, also called inventory days, days in inventory or days inventory outstanding (DIO), is how long stock sits before it is sold. The inventory days formula is:

Inventory days = stock ÷ cost of sales × 365

This is the days inventory outstanding formula. Stock is valued at cost, so it is divided by cost of sales, not by sales, and no VAT adjustment is needed. To calculate days of inventory for a single month, use that month’s cost of sales and its number of days. With stock of £36,000 and cost of sales of £300,000, inventory days are 43.8. Inventory turnover in days is the same figure another way: 365 divided by the inventory turnover ratio (cost of sales ÷ stock).

The cash conversion cycle and the working capital cycle

Add them together and you have the cash conversion cycle, which in the UK is usually called the working capital cycle: the number of days between paying for stock and being paid for what it became.

The cash conversion cycle equation, also written as the working capital cycle equation, is:

Cash conversion cycle = debtor days + inventory days − creditor days

For the joinery firm, VAT adjusted: 45.6 + 43.8 − 42.6 = 46.8 days. The operating cycle is the first two only, stock days plus debtor days, before suppliers’ credit is taken off. A negative cash conversion cycle means suppliers are paid after customers pay, so the suppliers are in effect funding the business, which is common in retail and online selling where customers pay at once. The cash tied up is the money behind those days: trade debtors plus stock less trade creditors.

What are good debtor days?

The best yardstick is your own payment terms. Under UK late payment rules, if no payment date is agreed a payment becomes late 30 days after the customer receives the invoice or the goods, and agreed terms between businesses usually have to be within 60 days. Debtor days much above the terms you set mean customers are paying late on average; the aged debtors report shows which ones. What is normal varies by sector, so the trend in your own figure, month on month, matters more than any single number. Each day off debtor days brings in a day’s sales in cash: on £576,000 of sales including VAT, about £1,578.

How to reduce debtor days

• Invoice the day the work is done, with the payment date and how to pay on the invoice.
• Agree terms in writing before you start, and keep them as short as the customer will accept.
• Chase on a schedule: a reminder before the due date, a call the day after.
• Make paying easy: card, bank transfer details on the invoice, or direct debit for repeat work.
• Read the aged debtors every week, not at the year end.

Checked on 9 October 2026: GOV.UK, Late commercial payments: when a payment is late. The formulas are the standard ones taught for UK accounts; this calculator is a guide to the arithmetic, not advice.