Debtors Days Outstanding
Debtors Days Outstanding is vital due to the high importance of cash in running a business. It is in a company’s best interest to collect on its outstanding accounts receivable as quickly as possible. By quickly turning sales into cash, a company has a chance to put the cash to use again more quickly.
Debtors Days Outstanding (DDO) is a measure of the average number of days that it takes a company to collect payment after a sale has been made. DDO is often determined on a monthly, quarterly or annual basis, and can be calculated by dividing the amount of accounts receivable during a given period by the total value of credit sales during the same period, and multiplying the result by the number of days in the period measured.
Less than 60
Although it’s important to note that this will vary across industries so it’s important to know what your industry target should be.
DDO = accounts receivable / average sales per day
A high DDO number shows that a company is taking longer to collect money or selling its product on credit. This may lead to cash flow problems because of the long duration between the time of a sale and the time the company receives payment. This can be improved by requesting a deposit, reducing trading terms, automating your billing process or focusing more time on sending payments reminders. A low DDO value means that it takes a company fewer days to collect its accounts receivable.
It goes without saying you need to keep debtors days as low as possible. It’s not always that easy but maintaining a fast turn around on invoices is a key action to help you not just survive but thrive.
I encourage you to create a report or a dashboard that gives you all your figures whenever you need them. If you don’t have the time or resources to make that happen then sign up for Blue Bean today and you’ll see your metrics within a few minutes.
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