Number of days' credit granted

For example:

Annual turnover including GST  $10 million
Trade debtors $1.5 million
Number of days' credit  55

The calculation is:  (1.5 / 10) x 365 = 55 days

Obviously, the lower the number of days the more efficiently the business is being run.

The figure for trade debtors normally comes from the closing Balance Sheet and care should be taken that it is a figure typical of the whole year.

If $1.5 million of the $10 million turnover came in the final month, the number of days' credit is really 31 instead of 55.

The calculation is:  (1.5 / 1.5 ) x 31 = 31 days

Care should also be taken that the GST-inclusive debtors figure is compared with the GST-inclusive turnover figure.

GST is normally excluded from the Profit and Loss Account.



GST = General Sales Tax
In other countries, it is the VAT or Value Added Tax.

Get your customers to pay on time

Take it seriously and give the task the time and resources necessary.

Tel yourself that you are entitled to be paid on time and that you are being cheated if you are not.

Agree the terms in advance and make it clear that they should be honoured.

A good motto is "ask early and ask often".

If all else fails take legal action.

A tough but fair line will probably not upset your customers, but it might.

Ask yourself if you really want those customers.