When business owners talk about cashflow problems, they usually jump straight to revenue.
"Sales are down."
"Margins are tight."
"We just need one more big job"...
In reality, a lot of cashflow pressure has nothing to do with profit at all. It lives inside working capital, and one of the fastest ways to unlock it is sitting right there on your balance sheet:
debtors.
→ Quick Refresher: Working Capital
→ What is a Debtor, Really?
→ How Days Debtors is Actually Calculated
→ The KPI That Actually Changes Behaviour
→ Why This Changes How You Think About Cashflow
→ What Comes Next
→ How CFO Dynamics Helps Improve Days Debtors
Quick Refresher: Working Capital
At its simplest, working capital looks like this:
(Debtors + Stock + Work in Progress) - Creditors = Working Capital
The lower that final number is, the more cash you've released back into your business. In this post, we're focusing on just one part of the equation (debtors), because it's often the easiest place to make meaningful gains without changing pricing, staff, or operations.
What is a Debtor, Really?
A debtor is someone you've already sold to but haven't been paid by yet.
You've done the work. You've delivered the product. You've raised the invoice.
...and now you're waiting.
If you buy groceries at a supermarket, there are no debtors. You pay on the spot.
Now, if you manufacture a product, deliver it to a customer, and give them 30 days to pay, that invoice becomes a debtor until the cash hits your bank account.
When we talk about days debtors, we're simply measuring how long, on average, it takes for that to happen.
How Days Debtors is Actually Calculated
Days debtors isn't a feeling. It's not 'pretty good' or 'about normal for our industry'.
It's a number, and it matters a lot more than you might think.
The simplified formula looks like this:
- Take your debtors balance at the end of a set period
- Divide it by your revenue for the same period (including GST)
- Multiply by the number of days in that set period you used
Let's go through a practical example for the end of June:
- Debtors balance: $1,000,000
- June Revenue: $1,250,000
- GST (Australia): 10% = Revenue x 1.1 = $1,375,000 (1 = Revenue, 0.x = GST)
- Days in June: 30
So, the calculation becomes:
$1,000,000 ÷ $1,375,000 x 30
= about 22 days debtors.
That means, on average, you're getting paid 22 days after invoicing.
Sounds reasonable, right? Here’s where most businesses stop.
The KPI That Actually Changes Behaviour
Knowing your days debtors is useful, but the KPI that really matters (and drives the most amount of action) is what is one day of debtor improvement worth in cash?
Using the same example from before:
- $1,000,000 in debtors
- 22 days outstanding
$1,000,000 ÷ 22 days = ~$45,000 per day
What does that mean and why is it better to track days debtors like this?
Well, it means improving days debtors from 22 to 21 puts $45,000 into your bank account.
Improving from 22 to 20 releases around $90,000.
No extra sales. No cost cutting. No margin changes. Just faster cash.
This is the moment where debtor management stops being an 'admin issue' and becomes a leadership and strategy conversation.
Why This Changes How You Think About Cash Flow
When someone says, “22 days isn’t too bad,” they’re technically right.
But they’re also ignoring the fact that two days is a six-figure cash decision in many businesses.
That cash can:
- Smooth payroll
- Reduce overdraft reliance
- Cover tax obligations
- Give you breathing room to make better decisions
And importantly, it’s your money. You’ve already earned it.
What Comes Next
This is just the first lever.
Reducing days debtors from 22 to 18... or from 57 to 51... or even from 90 to something manageable...
It doesn't happen by accident.
It comes from:
- Better invoicing discipline
- Clearer credit terms
- Stronger handoff between sales, operations, and finance
- Debtor KPIs that actually motivate behaviour
If working capital is something you want to get on top of properly, this is just one piece of a much bigger puzzle.
How CFO Dynamics Helps Improve Days Debtors
Improving days debtors is rarely about chasing customers harder. It is usually about fixing the system around billing, credit, accountability, and visibility.
At CFO Dynamics, we help businesses improve days debtors by working on the commercial and operational levers that actually control when cash is received.
1. Making The Number Visible and Meaningful
Most businesses track debtors, but very few understand what one day of improvement is worth in real cash. We calculate days debtors properly, quantify the dollar value of one day, and turn it into a KPI that leadership, sales, and finance teams all understand.
2. Cleaning Up Credit Terms and Discipline
We review credit terms, payment expectations, and how consistently they are applied. In many businesses, terms exist on paper but not in practice. Tightening this alone often releases cash quickly.
3. Fixing Invoicing Delays.
Late or incorrect invoices are one of the biggest silent drivers of poor days debtors. We map the invoicing process from job completion to invoice issue and remove friction points that slow cash collection.
4. Aligning Sales, Operations and Finance
Debtor performance is not just a finance problem. We help align incentives and handovers between sales, operations, and accounts so payment expectations are set early and reinforced consistently.
5. Building Debtor Management Rhythm
Rather than reactive chasing, we implement clear debtor review rhythms, escalation points, and ownership so overdue invoices are managed systematically and professionally.
6. Linking Debtor Improvement to Working Capital Strategy
Days debtors is only one lever. We help businesses understand how debtor improvements fit into a broader working capital strategy alongside stock, work in progress, and creditor management.
The outcome is simple.
Faster cash into the bank. Less reliance on overdrafts. More control over funding growth and payroll.
If days debtors feel “not too bad” but cash still feels tight, that gap is usually where the opportunity sits.
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