The debtor days problem: cutting 60 days down to 30

 

What debtor days really measure

Debtor days tell you how long, on average, your customers take to pay you. The formula is simple: divide trade receivables by annual credit sales and multiply by 365. A business sitting at 60 debtor days is effectively giving every customer a two-month interest-free loan, funded from its own cash reserves. Bring that down to 30 days and you release a full month of sales back into the bank account. For a business turning over £1.2 million, that single improvement frees roughly £100,000 of working capital. No new borrowing, no new sales required.

Measure it before you try to fix it

Start with the headline number, then break it down. Segment debtor days by customer, by invoice size and by salesperson or account manager. The aged debtors report is your best friend here: a headline of 45 days can hide one large customer sitting at 90 while everyone else pays in 30. Track the number weekly, not monthly, because a monthly view lets problems age for weeks before anyone notices. Set a target that fits your terms: if your standard terms are 30 days, a realistic goal is debtor days in the low thirties, allowing for normal payment processing time.

Fix the invoice and you fix half the delay

A surprising share of late payment is self-inflicted. Invoices go out late, carry the wrong purchase order number, or land with someone who cannot approve them. Tighten the basics:

• Invoice on completion or dispatch day, never in a month-end batch.
• Quote the customer's PO number and the right delivery address on every invoice.
• Send the invoice to the accounts payable contact, not just the person who placed the order.
• State payment terms, the due date and your bank details clearly on the face of the invoice.
• Use e-invoicing or a customer portal where large customers offer one, so the invoice enters their system the same day.

Each of these removes a reason for the customer's system to park your invoice in a query queue.

Build a chasing cadence and stick to it

Ad hoc chasing fails because it depends on someone remembering and feeling brave enough to call. Replace it with a written cadence that runs like clockwork:

• Seven days before the due date: a polite reminder with the invoice attached.
• On the due date: a short nudge if payment has not arrived.
• Seven days overdue: a firmer email from a named person, with a payment link.
• Fourteen to twenty-one days overdue: a phone call, then escalation to the account manager or director.
• Beyond that: a formal letter before action and, for chronic late payers, a stop on further supply until the balance clears.

Give one person clear ownership of the ledger and review the overdue list with them every week. The cadence matters more than the tone: customers pay the suppliers who ask systematically, not the ones who ask loudest.

Make paying you the easiest option

Friction kills payment speed. Add a payment link or QR code to every invoice and reminder so the customer can pay in two clicks. Accept card payments for smaller balances, even allowing for the processing fee, because a 1.5% fee beats a 45-day wait. Offer Direct Debit to regular customers; it turns collection into a background process. For larger invoices, consider a modest early settlement discount, such as 1.5% for payment within 10 days. Price the discount against your real cost of waiting, and offer it only where the customer's payment behaviour justifies it.

Set terms that protect you from the start

Prevention beats cure. Run credit checks on new customers above a sensible threshold and set credit limits to match. Ask new or higher-risk customers for a deposit or for payment on shorter terms until a track record is established. Include a retention of title clause in your terms so unpaid goods remain legally yours. For larger exposures, a personal guarantee from the customer's director is worth discussing. And review limits annually: a customer who was good for £10,000 three years ago may now owe you £40,000 on habit alone.

Cutting debtor days from 60 to 30 is rarely one big fix. It is a dozen small disciplines, applied every week, that compound into six figures of freed cash. Businesses that treat credit control as a proper finance function see the results within a quarter. Finex Outsourcing, a Global Business Services provider, gives UK SMEs that function through its financial accounting outsourcing services: disciplined ledgers, systematic credit control and reporting that shows the number moving in the right direction.