Debtor, creditor and stock days
Three ratios turn a balance sheet into a story about time. Worked out properly, they show how long a client waits for its money, how long it makes its suppliers wait, and how long its goods sit on the shelf.
On Business Training · 1 September 2026 · 5 min read
A balance sheet shows what a business owned and owed on one day. On its own it says little about how fast money moves through the business. Three ratios fix that: debtor days, creditor days and stock days. Each converts a balance into a number of days, and days are something a financier can compare with payment terms, with last year and with the ledger in front of them.
The three formulas
- Debtor days = trade debtors ÷ sales × 365. How long, on average, customers take to pay.
- Stock days = stock ÷ cost of sales × 365. How long goods sit before they are sold.
- Creditor days = trade creditors ÷ purchases × 365. How long the business takes to pay its suppliers. Purchases are rarely shown in filed accounts, so cost of sales is the usual stand-in.
Use the year’s figures for sales and cost of sales, and the year-end balances for debtors, stock and creditors. If the accounts cover a period other than twelve months, use the number of days in the period instead of 365.
Take the VAT out first
This is the step most often missed. Sales in the profit and loss account exclude VAT. Trade debtors and trade creditors on the balance sheet include it, because the invoices do. Divide a VAT-inclusive balance by VAT-exclusive sales and every figure comes out too high.
For a business charging VAT at 20% on everything it sells, divide trade debtors by 1.2 before you start. Do the same for trade creditors if its suppliers charge VAT. Where only some sales carry VAT, or a large share is exported, the adjustment is smaller, and the client can tell you the split.
A worked example
Fenwick Packaging Ltd’s accounts for the year show:
| £ | |
|---|---|
| Sales | 2,400,000 |
| Cost of sales | 1,680,000 |
| Trade debtors (including VAT) | 480,000 |
| Stock | 210,000 |
| Trade creditors (including VAT) | 302,400 |
Taking VAT out of the balances gives trade debtors of £400,000 and trade creditors of £252,000. Then:
- Debtor days: 400,000 ÷ 2,400,000 × 365 = 60.8 days
- Stock days: 210,000 ÷ 1,680,000 × 365 = 45.6 days
- Creditor days: 252,000 ÷ 1,680,000 × 365 = 54.8 days
Without the VAT adjustment, debtor days would have read 73 and creditor days 65.7. Both wrong, and both enough to change a conversation with the client.
Reading the numbers
Against terms. If Fenwick sells on 30-day terms, debtor days of 61 mean customers are paying, on average, a month late. If its terms are 60 days end of month, 61 is about right. The ratio means nothing until you know the terms.
Against last year. A rise from 48 to 61 debtor days in a year is worth a question even if both are within terms. It may be one large, slow customer. It may be disputes building up, or a change in the kind of customer the client sells to.
Against the ledger. You have something no ordinary reader of accounts has: the client’s aged debt report, every month. Debtor days from the accounts are a single year-end figure. The ledger tells you whether the year end was typical. If the accounts show 45 days and the ledger you fund has never been below 60, one of them needs explaining.
Stock days rising while sales are flat often means stock that won’t sell. It may be valued at cost in the accounts but worth far less. Creditor days rising can mean the business is using its suppliers as a bank. That is free finance until a supplier stops delivering.
Put them together
Add debtor days to stock days and subtract creditor days, and you have the length of the working capital cycle: how many days the business must fund between paying for goods and being paid for them.
For Fenwick: 60.8 + 45.6 − 54.8 = 51.6 days.
Every day in that cycle has to be financed by someone: the owners, the bank, or a facility like yours. If the cycle lengthens as the business grows, the funding need grows faster than sales. That is how profitable companies run out of cash, and why debtor days matter so much to an invoice financier.
Cautions
- One day is not a year. Year-end balances can be unusual. A seasonal business may have its year end at its quietest point. Window dressing, such as a big push on collections in the last week, can flatter debtor days.
- Compare like with like. Construction, wholesale and retail all have different normal patterns. Compare a client with its own history first and its trade second.
- Filed accounts may not give you the figures. Small companies can file a balance sheet without a profit and loss account. Without sales, you cannot work out debtor days from the filed accounts alone. Ask the client for full accounts or management accounts.
Worked out carefully, three ratios give a financier an early sign of slow-paying customers, unsold stock and stretched suppliers. Each one is worth a question at the next review.