Book contents · Chapter 7 of 11
Debtors grow when payment terms are loose, invoices go out late and nobody owns collection. Measure it as debtor days, put overdue debtors on the weekly numbers with a named owner, invoice on time, and agree payment terms before the work starts. Cutting debtor days releases cash that is already yours.
What are the signs your debtors are too high?
Sound familiar? These are the signs owners describe most often.
- The same customers are always late, and you keep working for them.
- Invoices go out days or weeks after the job is finished.
- Nobody chases until cash is tight, and then it is you.
- You don’t know your debtor days or the total overdue right now.
- You hesitate to chase because you don’t want to upset a good customer.
Why do debtors keep growing?
Invoicing late
The payment clock starts when the invoice arrives. Every day between finishing the job and sending the invoice adds a day to how long you wait for your money.
Terms that nobody agreed
If payment terms are not in the quote and on the invoice, the customer decides them. Thirty days quietly becomes ninety.
No one owns collection
Chasing is uncomfortable, so it waits for the owner, who is busy. A weekly routine with a named person is what actually brings the number down.
Not using your rights
EU late-payment rules, which apply in Malta, entitle a business to statutory interest on overdue business invoices and a fixed €40 recovery fee per invoice. Simply stating this on your invoices changes how customers prioritise you.
How much cash your debtors are holding
Debtor days measure how long, on average, customers take to pay: trade debtors ÷ annual credit sales × 365. Here is a fictional Maltese wholesaler.
| Line | Workings | Result | Type |
|---|---|---|---|
| Credit sales for the year | €600,000 | Actual | |
| Trade debtors at year end | €150,000 | Actual | |
| Debtor days today | €150,000 ÷ €600,000 × 365 | 91 days | Calculated |
| Target debtor days | 45 days | Assumption | |
| Debtors at the target | €600,000 × 45 ÷ 365 | €73,973 | Calculated |
| Cash released, once | €150,000 − €73,973 | €76,027 | Calculated |
Bringing collection from about three months to about six weeks releases roughly €76,027, once, without selling anything new. That is money the business has already earned.
Two-minute self-check
Tick the statements that are true for your business today.
How do you reduce debtor days?
In Numbers-First Management, these are the parts of the framework that do most of the work on this pain. Each one is explained in Part 2.
Weekly Dials
Overdue debtors and debtor days are weekly numbers with one owner, usually in sales or admin, not the business owner.
Read the Weekly Dials chapter →Weekly Table
The biggest overdue accounts go on the Fix List: agree a call, a payment plan or a pause on new work, decided in the room.
Read the Weekly Table chapter →Money Engine
Payment terms become part of how each job is priced. A customer who pays in ninety days at the same price is a less profitable customer.
Read the Money Engine chapter →When debtors and timing squeeze cash, the natural answer is the bank. Too often, the bank says no, or not yet.
Chapter 8: The bank says no →Is this costing your business?
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