number of days firm takes to pay creditors the number of days on average that a company requires to pay its creditors.
To determine creditor days, divide the cumulative amount of unpaid suppliers' bills (also called trade creditors) by sales, then multiply by 365. If suppliers' bills total $800,000 and sales are $9,000,000, the calculation is:
(800,000 / 9,000,000) × 365 = 32.44 days
The company takes 32.44 days on average to pay its bills.
Creditor days is an indication of a company's creditworthiness in the eyes of its suppliers and creditors, since it shows how long they are willing to wait for payment. Within reason, the higher the number the better, because all companies want to conserve cash. At the same time, a company that is especially slow to pay its bills (100 or more days, for example) may be a company having trouble generating cash, or one trying to finance its operations with its suppliers' funds.
Related definitions of "creditor days"
- See also debtor days