According to the definitions of Debtor Days (this one is from wikipedia): 'The debtors days ratio measures how quickly cash is being collected from debtors'. It doesn't though. I've recently had reason to think about this for the first time in a while as I couldn't understand why our debtor days were getting worse. Imagine I have one customer who orders $100 per month but always pays on the 7th day of the following month. The year end DD calculation would be $100 / $1200 * 365 = 30.4. The conclusion therefore is it takes me, on average, 30.4 days to collect cash but I know it doesn't, it takes seven. All this formula tells me is how many days of sales is represented by the debtor balance. If, as in my case, my debtor balance has increased by a greater percentage than sales have then the debtor days worsen. That's just how the maths works and has nothing to do with how quickly additional debtors are actually collected. That is why I'm seeing higher debtor days despite knowing that the additional business we are doing is with customers that pay us more quickly. If your business is consistent year on year Debtor Days would have some value as a relative measure but otherwise I can't see it how it does what it purports to do. Anyone have a different view or a better measure?
