3 THINGS YOU MUST DO BEFORE APPLYING FOR BUSINESS FINANCE Funding and Business Growth Playbook T: 0330 350 3356 @: hello@GrowingYourNumbers.com www: growingyournumbers.com
Last year Alex ’s Software Company was paying suppliers in 31.4 Days. This year Creditor Days have reduced by 4.2 to 27.2 days.
We still cannot say for sure whether this is good or bad because Alex may have negotiated and agreed preferential prices for faster payment, however paying suppliers faster is not good for Cash Flow.
Do you know what your Creditor Days are this year and how it has moved this year compared to last?
We will go into more detail shortly, but before that, let’s look at Debtor Days, or the time it takes customers to pay. Once again, how is Alex’ s Software Company performing.
Getting Paid: Debtor Days = 71.8
Debtor Days: This is cash coming into your business and Debtor Days is a measure of how long customers take to pay their invoices.
Cash Flowing IN to Your Business
As with Creditor Days, we cannot say for certain whether this year’s Debtor Days , which stand at 71.8 is good or bad without more information, but the movement in Debtor days will tell us whether the cash position has improved or deteriorated. Last year Alex ’s Software Company was receiving money from customers in 69.2 days on average, so it is now taking 2.9 days longer for Alex to get paid, which effectively means Alex ’s company is bank rolling customers giving them an additional 2.9 days credit. As a rule of thumb, you want to agree the longest possible payment terms with suppliers, whilst offering the shortest possible payment terms for customers, in other words, collect your cash as quickly as you can at the same time as holding onto your cash for as long as possible.
We have now considered cash in, and cash out, what about the bit in the middle, the cash tied up in the business? Let’s look at Stock .
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