Debtor Turnover Ratio

Debtor days is the more intuitive form and the more useful one, since it states in days how long customers take to pay. A lengthening cycle means either the company is selling to weaker customers, or it is recognising revenue that will be hard to collect, and the receivables ageing note distinguishes the two. Because the ratio uses total revenue rather than credit sales, it understates the true collection period for companies with substantial cash sales. It is the single most productive ratio for detecting aggressive revenue recognition, especially when compared against revenue growth.