creditor days

Fin

the number of days on average that a company requires to pay its creditors.

EXAMPLE

To determine creditor days, divide the cumulative amount of unpaid suppliers’ bills (also called trade creditors) by sales, then multiply by 365. If suppliers’ bills total $800,000 and sales are $9,000,000, the calculation is:

(800,000/9,000,000) × 365 = 32.44 days

The company takes 32.44 days on average to pay its bills.

     Creditor days is an indication of a company’s creditworthiness in the eyes of its suppliers and creditors, since it shows how long they are willing to wait for payment. Within reason, the higher the number the better, because all companies want to conserve cash. At the same time, a company that is especially slow to pay its bills (100 or more days, for example) may be a company having trouble generating cash, or one trying to finance its operations with its suppliers’ funds. An abnormally high creditor days figure may not only suggest a cash crisis, but also indicate the management’s difficulty in maintaining revolving credit agreements.

See also debtor days