How to calculate creditor days (and what your Xero figure means)

Short answer: creditor days = what you owe suppliers ÷ what you buy from suppliers in a year × 365. It is the average number of days you take to pay a bill. Take “what you owe” from Xero’s Aged Payables Summary as at today, take “what you buy” from the last 12 months of costs that arrive as supplier bills, and use both without GST or VAT. Then compare the answer with the terms your suppliers give you, not with a benchmark: on 30-day terms, about 30 is right, well under 30 means you are paying early with cash you could keep, and well over 30 means you are paying late.

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The formula

Part	Where to find it in Xero	Notes
Owed to suppliers	Accounting › Reports › Aged Payables Summary, as at today, total	Includes GST or VAT, so take it off (below)
Annual purchases	Profit and Loss for the last 12 complete months: the cost lines that come in as supplier bills	Without GST or VAT already
Days	365	Use the days in the period if you use a shorter one

Creditor days = owed to suppliers ÷ annual purchases × 365

Two details make most home-made figures wrong:

• Take the GST or VAT out of the payables total. Aged Payables shows what you will actually pay, tax included; the Profit and Loss shows costs without it. Divide the total by 1.1 for Australian GST, 1.15 for New Zealand GST, or 1.2 for UK VAT at the standard rate. If you are not registered, or most suppliers do not charge it, leave it as it is.
• Count only costs that arrive as bills. Materials, stock, subcontractors and overheads you are invoiced for (rent, power, software, repairs). Leave out wages, super or pension, depreciation, bank fees, interest and tax: they never sit in Aged Payables, so including them makes creditor days look shorter than they are.

If your payables total swings a lot through the month (for example, most bills land at month end), use the average of the totals at the start and end of the year instead of today’s figure.

A worked example: a wholesale bakery

A bakery in Australia supplies cafés. Its suppliers give 30-day terms. From Xero:

From Xero	Amount
Aged Payables Summary total, today	$46,200 (with GST)
Ingredients and packaging, last 12 months	$310,000
Overheads billed by suppliers (rent, power, repairs, software), last 12 months	$55,000
Production wages, in cost of sales	$220,000

1. Owed to suppliers without GST: $46,200 ÷ 1.1 = $42,000.
2. Annual purchases on bills: $310,000 + $55,000 = $365,000, so one day of purchases is $1,000.
3. Creditor days: $42,000 ÷ $365,000 × 365 = 42 days.

On 30-day terms, 42 days means the bakery is paying about 12 days late on average, which is roughly $12,000 of bills that should already have been paid. The Aged Payables report shows where: if most of it sits in the overdue columns against one or two suppliers, those are the relationships at risk. A supplier who puts the account on hold or asks for payment up front costs far more than 12 days of credit is worth.

The owner’s first thought was that 42 days looked fine, because Xero’s Executive Summary said 29. That is the divisor at work: Xero’s Average creditors days divides the payables balance by cost of sales, which here includes $220,000 of production wages and leaves out the $55,000 of overhead bills. $46,200 ÷ $585,000 × 365 is about 29. The bakery does not pay its wage earners on 30-day terms, so that figure hides the late payments. The Xero Executive Summary explained covers its other ratios.

The opposite case matters too. If the same bakery paid every bill within 14 days, its creditor days would be about 14, and paying on the real 30-day due dates instead would keep 16 days × $1,000 = $16,000 in the bank, once, at no cost. How to improve cash flow in a small business ranks that against the other ways to free cash.

What a good creditor days figure is

There is no universal good number; it depends on your terms. Read it like this:

Your creditor days, against your usual supplier terms	What it usually means
Well below terms	Paying early. Fine if a supplier gives an early payment discount worth more than the cash; otherwise cash you could keep
Close to terms	Paying on time. This is the target
Well above terms	Paying late, or bills entered with the wrong due dates. Check the overdue columns of Aged Payables

Then put it next to debtor days, how long your customers take to pay you. If customers take 45 days and you pay suppliers in 30, you are funding 15 days of trade from your own cash, and that gap grows as sales grow. The free debtor days calculator works out the customer side and how much is tied up beyond your terms. Closing that gap by collecting faster is usually better than by paying suppliers later. If you hold stock, add the days it sits on the shelf too: how to calculate stock days. Debtor days plus stock days minus creditor days is your cash conversion cycle; the free cash conversion cycle calculator works it out and shows the cash it ties up.

Keeping it right in Xero

• Enter every bill with the supplier’s real due date. Xero lets you set default bill terms per contact and in the invoice settings. If due dates are wrong, Aged Payables and the overdue columns are wrong too.
• Pay in a weekly or fortnightly run of what is due (batch payments), rather than paying each bill when it arrives or when someone remembers.
• Match payments to bills. A payment entered as a Spend Money transaction instead of against the bill leaves the bill showing as unpaid, which inflates creditor days.
• Look at the overdue columns, not just the average. One large overdue bill and many early payments can average out to “30 days”. Xero aged debtors and creditors reports explains each column.

Common questions

What is the formula for creditor days? Trade creditors (what you owe suppliers) divided by annual credit purchases, multiplied by 365. Use both figures without GST or VAT, and only purchases that come in as supplier bills.

Is a high creditor days figure good or bad? Up to your suppliers’ terms it is good: you keep cash longer at no cost. Well above their terms it is bad, because it means paying late, and suppliers who are paid late tighten credit, add fees or stop supplying.

What is the difference between creditor days and debtor days? Creditor days is how long you take to pay suppliers; debtor days is how long customers take to pay you. When debtor days is higher than creditor days, your own cash fills the gap between paying for the work and being paid for it.

Why is Xero’s creditor days different from mine? The Executive Summary’s Average creditors days divides the payables balance by cost of sales for the period you choose. If your cost of sales includes wages, or most of your bills are overheads outside cost of sales, or you have little cost of sales at all, its figure will be far from what you actually take to pay. Use it as a trend, and work out your own figure from supplier bills.

Should creditor days include GST? Not if your purchases figure excludes it, which it does when taken from the Profit and Loss. Take the GST or VAT out of the Aged Payables total first, or creditor days come out about 10 to 20% too high.

Do wages count in creditor days? No. Wages, super or pension and tax are not supplier bills and never appear in Aged Payables. Leave them out of the purchases figure.

Seeing what is due every Monday

ReportPilot reads your Xero figures and sends a short plain-English email every Monday. When bills fall due in the next 14 days, it says how much, how much is already overdue, and whether the cash in the bank covers them, so you can see whether the next supplier runs are covered before you pay them. For the weeks further out, a 13-week cash flow forecast or Xero short-term cash flow shows what is coming. ReportPilot asks Xero for read-only access, and there is a 14-day free trial with no card.