Creditor days

Creditor days is the average number of days a business takes to pay its suppliers. It is calculated as trade payables divided by cost of sales, multiplied by 365, and it is also called days payable outstanding or payables days. It sits alongside debtor days as one of the two ratios that describe a working capital cycle: one says how long you wait to be paid, the other how long your suppliers wait for you.

The creditor days formula

Creditor days = (trade payables / cost of sales) x 365

Trade payables is the balance owed to suppliers at the date you are measuring, taken from the balance sheet. Cost of sales is the annual figure from the profit and loss account. A second version of the formula uses annual purchases instead of cost of sales, which is technically closer, because cost of sales also carries direct labor and production overheads that never appear in the payables balance. Most management accounts do not separate purchases, so cost of sales is the figure businesses actually use. Either is defensible. Using one and then the other from year to year is not, because the change in the number will be the change in method rather than the change in behavior.

Worked example

1. Trade payables at the year end: £40,000.
2. Cost of sales for the year: £280,000.
3. 40,000 / 280,000 = 0.1429.
4. 0.1429 x 365 = 52 days.

The business takes 52 days on average to pay a supplier. Run it monthly rather than once a year: the balance moves as invoices land and payment runs clear, and the direction of travel says more than the figure on any one date.

What your creditor days figure means

Below 30 days, you are paying faster than your terms require. That is not a fault, but if your debtor days are 45 or more you are financing your customers' credit out of your own cash. Between 30 and 60 days is the ordinary range for a UK business on standard 30-day supplier terms that takes the full term. Above 60 days, the number needs an explanation: extended terms you negotiated and hold in writing are a working capital asset, while the same figure reached by paying late is a supplier relationship being spent down, and it shows up on the credit checks your suppliers run on you.

The first benchmark is your own agreed terms, not a sector average. If your suppliers are on 30 days and your creditor days are 50, you are paying late whatever the industry figure says. The second is the trend: a jump from 45 to 65 in one quarter, with debtor days unchanged, usually means cash got tight and suppliers absorbed it.

There is no published dataset of creditor days for UK small businesses. The nearest public evidence is the government's payment practices reporting service, which holds the average time to pay for companies that meet two of three thresholds - £54 million turnover, £27 million balance sheet, 250 employees - so it describes the large customers a small business invoices, not the small business itself. Our creditor days benchmarks page sets out illustrative ranges by trade and explains why position in the payment chain matters more than any average.

Getting the trade payables figure right each month is a bookkeeping problem before it is a ratio problem: it needs every supplier commitment recorded when it is made rather than when the invoice is opened. Zigaflow's purchase orders hold the value and date of each order against the job, and matched supplier invoices export to Xero, QuickBooks or FreeAgent, so the payables balance you calculate from is the one your accounts show.