Money burning a hole in your pocket? (Creditor Days)

Are you strategic with how long you hold onto your money or are you a supplier’s dream?

My last post on Debtor days, and how you collect the money due to you, leads smoothly into how well you pay your suppliers. And, yes, you can be too good at this!

Creditor Days: This is the inverse of debtor days and this KPI looks at how long you take to pay your invoices for goods and services. You’ll have probably negotiated some credit terms with suppliers or 30 or 45 days and if you honour those terms as you should, then you’d expect your creditor days to reflect something akin to those terms.

If your creditor days are high, then you’re either negotiating excellent terms and honouring them, or you’re paying late, which will eventually damage supplier relationships and your ability to get credit at all.

If your creditor days are low, you’re maybe paying invoices super quickly and your suppliers will be happy with the cash in their bank instead of yours, but what else might you have done with that money in the intervening 15 or 20 days? Could you have put it on a short term deposit and made it work for you? Could you up your working capital for some planned investment in a business-growing asset sooner rather than later?

Tracking the movement in both creditors and debtors can give you an early warning for waning cash flow and you can take action to control it.