How do you calculate creditor days?
The short answer
Creditor days = trade payables at the month end ÷ the credit purchases of the last three months × the number of days in those three months. Where purchases can't be separated, direct costs (cost of sales) stand in, as long as the same basis is used every month.
It shows how long, on average, the business takes to pay its suppliers. In the US the same measure is DPO, days payable outstanding.
Every figure shown here is invented for illustration. Nothing on this page is computed from anyone’s accounts.
A wholesaler owing £118,000 takes about 41 days to pay
An invented wholesaler owes suppliers £118,000 at the end of September. Its purchases on credit in July, August and September came to £264,000, net of VAT, and those three months have 92 days.
Creditor days = 118,000 ÷ 264,000 × 92 = 41.1 days
If its supplier terms are 30 days, it is paying about eleven days late on average.
Three months of purchases, each with its own number of days
One month of purchases makes the number jump whenever a big order lands. A full year hides a change that happened last quarter. Three months, with that period's own number of days, is steady enough to show a trend and recent enough to show a problem. It is the window debtor days uses too, so the two can be read side by side.
Payables include VAT or GST; purchases do not
The creditor balance in the trial balance is what is owed, tax included: VAT in the UK and the UAE, GST in Australia, sales tax where it applies. Purchases in the profit and loss are net of it. Comparing the two overstates creditor days by roughly the tax rate: about a fifth in the UK, a tenth in Australia. Take the tax out of payables, or put it on the purchases, and do it the same way every month.
Trade payables are what suppliers are owed, and nothing else
Include what is owed to suppliers for goods and services. Leave out:
- VAT or GST payable, payroll taxes and corporation tax;
- loans, director's loan accounts and credit cards, unless the card pays suppliers;
- accruals for costs not yet invoiced. Some teams include them; either way, be consistent.
Read creditor days against the supplier terms you agreed
| Creditor days against terms | What it usually means |
|---|---|
| Well below terms | Paying early: fine while cash is strong, otherwise you are funding your suppliers |
| Close to terms | Healthy |
| Above terms for several months | Cash pressure, or invoices stuck in approval; suppliers notice before the board does |
Read it with debtor days and inventory days. Debtor days + inventory days − creditor days is the cash conversion cycle: how long cash is out of the business.
Magic MIS computes it every month, the same way
Magic MIS computes creditor days as trade payables ÷ the direct costs of the last three months × the days in them, beside debtor days, inventory days and the cash conversion cycle. Where fewer than three months are loaded it uses the months there are, and says so. Each figure opens to the payables and cost ledgers it came from. The AI writes the words of any commentary; the engine calculates every number.
What people ask about creditor days
Is DPO the same as creditor days?
Yes. DPO, days payable outstanding, is the US name for the same measure.
Should I use cost of sales instead of purchases?
If credit purchases can't be separated, cost of sales is the usual substitute. Stock movements make it less exact, so say which you used and keep to it.
What is a good number of creditor days?
Close to the supplier terms you agreed. There is no universal figure; thirty to sixty days is common for small and medium businesses.
Can creditor days be negative?
No. A debit balance on trade payables means suppliers were paid in advance, or something was posted to the wrong account; check the ledger.
Read next
- How do you calculate debtor days?Debtor days = trade receivables ÷ the last three months' revenue × the days in them. A worked example, why three months beats one or twelve, and the GST effect nobody mentions.Read
- How do you calculate inventory days?Inventory days = closing stock ÷ the last three months' cost of sales × their days. The formula, a worked example, how stock valuation changes it, and what a rise means.Read
- KPIs and ratios for a monthly MIS: formulas and what they tell youThe ratios a monthly MIS or management accounts pack should carry — margins, debtor, creditor and inventory days, cash conversion cycle, current and quick ratio — with formulas.Read
Have creditor days computed from your trial balance
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