Creditor Days: How Long You Take to Pay Suppliers

Creditor days measures how long, on average, you take to pay your suppliers. It is the mirror image of debtor days. Paying suppliers later keeps cash in your business for longer, but paying beyond the terms you agreed has costs of its own.

The formula

Trade creditors is the amount you owe suppliers on the balance sheet date. Credit purchases is what you bought on credit over the year. If you cannot separate purchases, cost of sales is a common substitute, though it includes items such as direct wages that are not supplier purchases.

Worked example

A small electrical contractor owes suppliers £48,000 at the year end. It bought £420,000 on credit during the year, mostly on 30-day terms.

• Creditor days: £48,000 ÷ £420,000 × 365 = 41.7 days.
• Days beyond terms: 41.7 − 30 = 11.7 days.
• Value paid late at any time: 11.7 × £420,000 ÷ 365 = about £13,500.

What late payment can cost

Under UK late payment law, a business supplier can claim statutory interest on late payments from another business, unless your contract sets a different rate. According to GOV.UK, the rate is 8% plus the Bank of England base rate. The supplier can also charge a fixed sum for debt recovery on each late payment:

Many suppliers never claim these, but they are entitled to. More often, the real cost of paying late is worse terms, lower priority when stock is short, or a supplier who stops giving credit at all.

Calculate your creditor days

Getting creditor days right

• Agree terms, then keep to them. Asking for 45 or 60 days openly is better than taking them without asking.
• Pay on the due date, not early, unless there is a discount for paying early that is worth more than holding the cash.
• Protect key suppliers. Pay the suppliers you cannot easily replace on time first.
• Compare with debtor days. If customers take 50 days to pay you and you pay suppliers in 30, the gap has to be funded. Collecting faster is usually the better fix; see the cash conversion cycle.