How do you calculate debtor days?

The other common versions divide receivables by one month’s revenue, or by a year’s revenue and multiply by 365. One month jumps with every invoice raised a day late. A year is slow: a business whose sales doubled this quarter looks as if its customers pay twice as late. Three months moves with the business and not with the calendar. Read the trend across months, and say which basis the report uses. Debtor days is also called DSO, days sales outstanding: the DSO formula and the debtor days formula are the same thing.

A receivable is the invoice total, tax included; revenue is booked without it. So debtor days computed straight from the books run higher than the real collection period by roughly the tax rate. Either basis is defensible if it is stated and kept the same every month, because what a reader acts on is the direction.

Debtor days rising while sales are flat means collections are slipping, and it is usually the first ratio worth acting on. Rising after a month-end burst of sales is the calendar, not the customers. The debtors ageing report shows which customers are behind it.

Magic MIS computes debtor days as trade receivables ÷ the revenue of the last three months × the days in them, as booked, beside creditor days and inventory days, which take cost of sales the same way. Where fewer months are loaded it uses the months there are, and says so. Each figure opens to the receivables and revenue ledgers it came from.