Debtors days

[Fantasyman]

Debtor days calculations are based on

Debtors=Debtors/sales turnover * no of days

My question is should you use sales(turnover not including VAT) and
debtors(which include VAT). Is it better to gross up sales or reduce
the value of debtors? This is for monitoring credit controllers rather
than external reporting.

 

[Troy Steadman]

Debtor days calculations are based on

Debtors=Debtors/sales turnover * no of days

My question is should you use sales(turnover not including VAT) and
debtors(which include VAT). Is it better to gross up sales or reduce
the value of debtors? This is for monitoring credit controllers rather
than external reporting.

You've even baffled the troll with this one! In English...

Debtor days=Debtors/sales turnover * 365

So whether you gross your Sales up, or net your Debtors down, makes not
a jot of difference.

 

[Fantasyman]

I didn't ask the question too well. Should I do either {gross up
sales/net debtors down} or do nothing.

It seems that I should do this, although it is not the textbook way of
doing it. In practice our calculation is done monthly so it is 30 days,
rather than 365.

 

[DoobieDo]

I didn't ask the question too well. Should I do either {gross up
sales/net debtors down} or do nothing.

It seems that I should do this, although it is not the textbook way of
doing it. In practice our calculation is done monthly so it is 30 days,
rather than 365.

A) top posters...

 

[Troy Steadman]

I didn't ask the question too well. Should I do either {gross up
sales/net debtors down} or do nothing.

It seems that I should do this, although it is not the textbook way of
doing it. In practice our calculation is done monthly so it is 30 days,
rather than 365.

Suppose your customers buy £100,000 net from you every month, and all
of them pay £117,500 exactly 30 days later. Their "Debtor days"
equals?

117,500/100,000*30

=35.25 days?

When you post to Usenet you should post to the bottom of the message,
otherwise you activate Dopey Doh, our troll.

 

[Martin]

Debtor days calculations are based on

Debtors=Debtors/sales turnover * no of days

My question is should you use sales(turnover not including VAT) and
debtors(which include VAT). Is it better to gross up sales or reduce
the value of debtors? This is for monitoring credit controllers rather
than external reporting.

Include VAT in both sales and debtors - it's total cash which matters. (If
you're cash accounting for VAT, it's less critical - but don't include VAT
in one figure and not in the other)

Always be wary of measures like this - eg seasonality can affect the
Dr-days and should therefore need to be reflected in targets. There are
other useful measures, too (eg Dr. age - you really don't want CCs ignoring
minnows for 6 months), weighting according to Dr risk, and of course you
need to decide how to deal with funnies - eg invoice in dispute which is
outside the control of your Cr Controllers. IME, time and money spent
training and motivating CCs to do a better job can be more cost-effective
than introducing targets.