Creditor Days Calculator

What is Creditor Days?

Creditor Days, also known as Days Payable Outstanding (DPO), is a financial metric that measures the average number of days a company takes to pay its suppliers after receiving an invoice. This key performance indicator provides insights into a company's cash management practices and its relationships with suppliers.

Formula for Creditor Days

The formula to calculate Creditor Days is:

\[ \text{Creditor Days} = \frac{\text{Accounts Payable}}{\text{Annual Credit Purchases}} \times \text{Number of Days in Period} \]

Where:

• \(\text{Accounts Payable}\): The total amount owed by the company to its suppliers
• \(\text{Annual Credit Purchases}\): The total value of goods or services purchased on credit during the year
• \(\text{Number of Days in Period}\): Typically 365 for annual calculations, but can be adjusted for different time periods (e.g., 90 for quarterly analysis)

Calculation Steps

To calculate the Creditor Days, follow these steps:

1. Determine the Accounts Payable balance from the balance sheet
2. Calculate the Annual Credit Purchases from the income statement or purchase records
3. Divide Accounts Payable by Annual Credit Purchases
4. Multiply the result by the number of days in the period (usually 365)

Example and Visual Representation

Let's calculate the Creditor Days for XYZ Company:

• Accounts Payable: $500,000
• Annual Credit Purchases: $3,000,000
• Time Period: 365 days

Applying the formula:

\[ \text{Creditor Days} = \frac{\$500,000}{\$3,000,000} \times 365 = 60.83 \text{ days} \]

This result indicates that XYZ Company takes an average of about 61 days to pay its suppliers.

Visual representation of Creditor Days:

This visual representation illustrates:

• The total time period of 365 days (represented by the entire bar)
• The Creditor Days of 61 days (represented by the green portion)
• The average time from when an invoice is received to when payment is made