How to reduce your debtor days and creditor days

For many businesses, cash flow problems occur due to payment timing. You deliver the work, issue the invoice, and then wait to be paid, while suppliers expect payment on agreed terms. Two metrics explain this tension better than almost any others: debtor days and creditor days.

Debtor days show how long it takes customers to pay you. Creditor days show how long you take to pay suppliers, also known as trade creditors. Together, they determine how much working capital your business needs to operate day to day. If debtor days are high while creditor days are short, your business is effectively financing customers while paying suppliers out of pocket. Over time, this imbalance can restrict growth, create cash pressure, and increase reliance on short-term finance.

What are debtor days?

Debtor days measure the average number of days it takes for your business to receive payment after issuing an invoice. The debtor days formula is: (Average trade receivables ÷ annual sales) × 365

Rising debtor days may indicate weak credit control, customers experiencing financial difficulty, or payment terms that are too generous for your sector. Reducing debtor days is one of the fastest ways to release cash from your business without increasing sales.

What are creditor days?

Creditor days measure how long your business takes to pay suppliers that offer trade credit. The creditor days formula is: (Average trade payables ÷ cost of sales) × 365

This calculation shows whether you are paying trade creditors too quickly or stretching payments beyond agreed terms. While longer creditor days can support cash flow, pushing them too far can damage supplier relationships and your business credit profile. The goal is balance: using agreed terms fully while maintaining trust with every trade creditor.

Why debtor days and creditor days matter for cash flow

Debtor days and creditor days form a key part of your cash conversion cycle: the time between money leaving your business and money coming back in. High debtor days mean cash is tied up in unpaid invoices, reducing your ability to cover wages, tax, rent, and supplier costs. Short creditor days mean cash leaves your business quickly to pay trade creditors, even if customer payments haven’t arrived yet. In a healthy position, businesses aim to collect cash as early as possible while using agreed supplier payment terms in full. A widening gap between debtor days and creditor days is often an early warning sign of cash flow stress.

6 ways to reduce your creditor days and debtor days

1. Negotiate better payment terms with each trade creditor

Every supplier that allows you to pay after delivery is a trade creditor, and the terms you agree with them directly affect your creditor days. Negotiating longer terms, such as moving from 30 to 45 or 60 days, can give your business more time to collect cash from customers before paying suppliers. Your ability to do this depends on how reliable you appear as a payer. Suppliers often assess risk using your business credit score, so maintaining a strong profile makes it easier to extend creditor days without damaging relationships. You can read our article for tips on how to improve your credit score.

2. Set clear credit terms to reduce debtor days

High debtor days are often caused by unclear or inconsistent credit terms. Customers should understand payment expectations before work begins, including invoice due dates and what happens if payment is late. Clear terms reduce disputes, make follow-up easier, and encourage on-time payment. In the UK, this can include referencing statutory interest under the Late Payment of Commercial Debts (Interest) Act. Setting expectations upfront is one of the most effective ways to reduce debtor days.

3. Review payment terms as your business grows

Payment terms that worked when your business was smaller may no longer be suitable as volumes increase. A sensible approach is to apply shorter terms to new customers, gradually update older agreements, and align terms with customer risk rather than offering the same terms to everyone. Credit checking customers before agreeing terms helps prevent debtor days from rising and protects working capital.

4. Use incentives to encourage faster payment

Early settlement discounts can be an effective way to reduce debtor days, particularly for businesses that issue a large number of invoices. Offering a small discount for payment within a short timeframe can encourage customers to prioritise your invoice. While this slightly reduces margin, it often improves liquidity and reduces the time spent chasing payments.

5. Automate invoicing and payment reminders

Late payments are frequently caused by simple delays, such as invoices being missed or forgotten. Using accounting software to send invoices immediately and automate payment reminders keeps your business visible without damaging customer relationships. Consistent, automated follow-up is one of the most reliable ways to reduce debtor days and stabilise cash flow.

6. Use funding to offset long debtor days

If debtor days remain high despite tighter controls, funding solutions can help reduce the impact on working capital. Invoice finance allows you to unlock cash tied up in unpaid invoices rather than waiting for customers to pay. This can improve liquidity while keeping existing payment terms in place and is particularly useful for growing businesses with strong sales but long payment cycles.

How Capitalise helps you manage debtor days and creditor days

Capitalise helps UK SMEs understand and manage the factors that influence cash flow. Through Capitalise, you can monitor your Experian business credit score, understand how trade creditors may view your business, credit check customers before setting payment terms, and explore funding options such as invoice finance and flexible credit lines. By staying on top of debtor days, creditor days, and your credit profile, you can protect working capital and make more confident decisions about growth.