What are debtor days?

Debtor days (also called days sales outstanding, or DSO) is roughly how many days it takes customers to pay you after you invoice them. It compares what customers owe you today with how much you sell each day.

What is the debtor days formula?

Debtor days = trade receivables ÷ credit sales × days in the period. Trade receivables (debtors) is what customers owe you; credit sales are the sales you invoiced over the same period. If customers owe you $50,000 and you invoiced $90,000 over the last 90 days, debtor days = 50,000 ÷ 90,000 × 90 = 50 days. For a full year, use annual credit sales and 365 days.

Is debtor days the same as the debtor collection period or DSO?

Yes. Debtor days, the debtor (or receivables) collection period and days sales outstanding (DSO) are names for the same calculation. Some textbooks use average receivables (opening plus closing, divided by 2) instead of the closing figure; it smooths a year-end spike but gives a similar answer when receivables are steady.

What is a good number of debtor days?

Close to your payment terms. If you give 30 days and debtor days come out at 32, customers are paying about on time. At 50, they are paying around 20 days late on average, and the money that represents is sitting in their bank instead of yours.

Should I use 3 months or 12 months of sales?

The last 3 months is usually better: it reflects what you sell now. Use 12 months if the business is seasonal and the last quarter was unusually busy or quiet, because debtor days rise after a busy month even when nobody is paying late.

Do I include GST or VAT?

If you can, yes. Invoices owed include the tax, while the sales line on the Profit and Loss usually does not, so mixing the two makes debtor days read a little high (about 10 to 20% high, depending on the rate). Leave out sales that customers paid for on the spot: they never become money owed, so including them makes debtor days look better than they are.

Are my figures stored or sent anywhere?

No. The calculation runs in your browser. Nothing you type is saved or sent to our server or anyone else. The only exception is if you ask us to email you the result: then your email address and a short summary of the result are stored, and nothing is sent until you confirm.

How is this different from ReportPilot's weekly email?

This calculator gives an average from the figures you type in. ReportPilot reads your invoices from Xero and each Monday tells you how much is past due, across how many invoices, and which customers owe the most and how many days late they are, so you know whom to chase first.

Debtor days (DSO) formula and calculator, with an example

The debtor days formula

Debtor days = trade receivables ÷ credit sales × number of days. Trade receivables (debtors) is what customers owe you on unpaid invoices at the end of the period. Credit sales are the sales you invoiced over that period, and the number of days is the length of the period: 365 for a year, 90 for a quarter. The answer is the average number of days customers take to pay. It also goes by debtor collection period, receivables days or days sales outstanding (DSO).

For a year: a business with $40,000 of trade receivables at year end and $292,000 of credit sales in the year has debtor days of 40,000 ÷ 292,000 × 365 = 50 days. Annual figures hide what happened recently, so for running the business the last 3 months, as in the calculator, is usually the better guide. Some textbooks use average receivables, (opening + closing) ÷ 2, instead of the closing figure.

Debtor days is one of three working capital measures. Creditor days is how long you take to pay your suppliers, and the cash conversion cycle calculator puts debtor, stock and creditor days together to show how long each dollar of sales is tied up before it comes back as cash.

How the calculator works

Daily sales = sales invoiced over the period ÷ the days in the period.
Debtor days = money customers owe you ÷ daily sales. It is how many days of sales are sitting unpaid.
Against terms = debtor days − your payment terms. Above zero, customers pay late on average.
Cash tied up = money owed − (daily sales × your terms). It is roughly what would be in the bank if every customer paid on time.

A worked example

A business invoiced $90,000 over the last 3 months and gives customers 30 days to pay. Its Aged Receivables report shows $50,000 owed, $22,000 of it past due. (Made-up figures to show the arithmetic.)

	Amount
Daily sales: $90,000 ÷ 90 days	$1,000 a day
Debtor days: $50,000 ÷ $1,000	50 days
Against 30-day terms: 50 − 30	20 days late on average
Cash tied up: $50,000 − ($1,000 × 30)	$20,000
Each 10 days faster: $1,000 × 10	$10,000 of cash

Getting customers back to 30 days would put $20,000 in the bank without selling anything more. Press "Load the worked example" above to see it in the calculator, and the cash runway calculator shows how many extra weeks that buys.

Getting the figures from Xero

Money owed: Accounting › Reports › Aged Receivables Summary, as at today. The total is the figure you want; the columns after "Current" are the past-due part. See Xero aged debtors and creditors reports for how to read it.
Sales: the Profit and Loss for the last 3 months, sales or trading income line. Add GST or VAT if your invoices include it.
Terms: the default due date under Invoice settings, or what most of your customers are on.

Why debtor days can mislead

A busy last month pushes debtor days up even when everyone pays on time, because those invoices are not due yet. Compare the same figure month to month rather than reading one result on its own.
An average hides the problem accounts. Ten customers paying on time and one paying 120 days late can look like "a bit slow". Sort the Aged Receivables report by the oldest column to find them; who owes me money in Xero shows how to see who is late and which invoices to chase first.
Disputed or doubtful invoices inflate the figure. If you do not expect to collect one, talk to your bookkeeper about writing it off; writing off a bad debt in Xero shows the steps and the GST or VAT you can get back.

How to get paid faster

Invoice the day the work is done, not at the end of the month.
Turn on Xero's invoice reminders and online card or bank payments: both cut the days customers take. The Xero invoice reminders guide has a schedule and wording that work.
Chase the biggest overdue balances first, with a short call or a reminder with the invoice attached. If you can charge interest on late payment (UK law allows it on business invoices; in Australia and New Zealand your terms need to say so), the late payment interest calculator shows how much you can add to the reminder.
Ask for deposits or stage payments on larger jobs, and agree shorter terms with new customers. Invoice payment terms: 7, 14 or 30 days? shows how much cash each choice ties up.

If the business is profitable but the bank balance still falls, money owed is often the reason: the profit but no cash explainer shows where the rest went.

Questions

What are debtor days?: Debtor days (also called days sales outstanding, or DSO) is roughly how many days it takes customers to pay you after you invoice them. It compares what customers owe you today with how much you sell each day.
What is the debtor days formula?: Debtor days = trade receivables ÷ credit sales × days in the period. Trade receivables (debtors) is what customers owe you; credit sales are the sales you invoiced over the same period. If customers owe you $50,000 and you invoiced $90,000 over the last 90 days, debtor days = 50,000 ÷ 90,000 × 90 = 50 days. For a full year, use annual credit sales and 365 days.
Is debtor days the same as the debtor collection period or DSO?: Yes. Debtor days, the debtor (or receivables) collection period and days sales outstanding (DSO) are names for the same calculation. Some textbooks use average receivables (opening plus closing, divided by 2) instead of the closing figure; it smooths a year-end spike but gives a similar answer when receivables are steady.
What is a good number of debtor days?: Close to your payment terms. If you give 30 days and debtor days come out at 32, customers are paying about on time. At 50, they are paying around 20 days late on average, and the money that represents is sitting in their bank instead of yours.
Should I use 3 months or 12 months of sales?: The last 3 months is usually better: it reflects what you sell now. Use 12 months if the business is seasonal and the last quarter was unusually busy or quiet, because debtor days rise after a busy month even when nobody is paying late.
Do I include GST or VAT?: If you can, yes. Invoices owed include the tax, while the sales line on the Profit and Loss usually does not, so mixing the two makes debtor days read a little high (about 10 to 20% high, depending on the rate). Leave out sales that customers paid for on the spot: they never become money owed, so including them makes debtor days look better than they are.
Are my figures stored or sent anywhere?: No. The calculation runs in your browser. Nothing you type is saved or sent to our server or anyone else. The only exception is if you ask us to email you the result: then your email address and a short summary of the result are stored, and nothing is sent until you confirm.
How is this different from ReportPilot's weekly email?: This calculator gives an average from the figures you type in. ReportPilot reads your invoices from Xero and each Monday tells you how much is past due, across how many invoices, and which customers owe the most and how many days late they are, so you know whom to chase first.

This calculator gives an estimate from the figures you enter. It is not financial advice. Xero is a trademark of Xero Limited. This tool and ReportPilot are independent and are not made or endorsed by Xero.

Debtor days (DSO) calculator: how long do your customers take to pay?

Your debtor days