Study notes

Creditor (Payables) Days

  • Levels: GCSE, AS, A Level
  • Exam boards: AQA, Edexcel, OCR, IB, Other, Pre-U

The Creditor (or payables) days number is a similar ratio to debtor days and it gives an insight into whether a business is taking full advantage of trade credit available to it.

Creditor days estimates the average time it takes a business to settle its debts with trade suppliers. The ratio is a useful indicator when it comes to assessing the liquidity position of a business.

As an approximation of the amount spent with trade creditors, the convention is to use cost of sales in the formula which is as follows:

Creditor Days Formula and Example Calculation

In general a business that wants to maximise its cash flow should take as long as possible to pay its bills.

However, there are obvious risks associated with taking more time than is permitted by the terms of trade with the supplier. One is the loss of supplier goodwill; another is the potential threat of legal action or late-payment charges.

You can also argue that it is ethical to pay suppliers on time, particularly if your suppliers are much smaller and rely on timely payment of their invoices in order to manage their own cash flow.

Job board

Teacher of Economics

Dubai College, Dubai

Topic Teaching Resources

Individual teaching resources for delivering specific topics, including teaching instructions.

  • The accountant is a teaching and learning activity that is used to consolidate income statements and ratio analysis.

    £5.00 (+VAT)

    The Accountant
  • Teaching Vacancies

    Recruitment

    Advertise your vacancies with tutor2u

    Much cheaper & more effective than TES or the Guardian. Reach the audience you really want to apply for your teaching vacancy by posting directly to our website and related social media audiences.

    Find our more ›

    Advertise your teaching jobs with tutor2u