Payables and Receivables Days

• What are trade receivables?

  Amounts owed to a busines by customers
• What are trade payables?

  Amounts owed by a business to suppliers
• What are receivables days?

  The average length of time taken by customers to pay amounts owed
• What are payables days?

  The average length of time taken by a business to pay amounts it owes
• How do you calculate receivables days?

  (Receivables)/(Revenue) x 365
• How do you calculate payables days?

  (Payables)/(Cost of sales) x 365
• Receivables days and payables days are a type of what ratio?

  Efficiency
• What are debtors?

  Customers that owe money to the business
• Where will you find the receivables figure (debtors)?

  Balance sheet
• Receivables are a current asset
• Does a business want a higher payables or receivables days?

  Higher payables days
• Why is a low receivables days figure good?

  Better cash flow and liquidity
• Offering trade credit to customers can increase sales as it is used as a marketing technique however it will increase receivables days
• Why can offering customers trade credit increase sales?

  The customers are able to afford the product otherwise they couldn't without trade credit
• What is the problem with a high receivables days?

  Liquidity issues which may force a business to use debt factoring
• What source of finance may a business be forced to use if it has a high receivables days?

  Debt factoring
• Where can you find the payables (creditors) figure?

  Balance sheet
• Payables are an example of current liabilities
• Why might a business not want a too high payables days?

  Can damage relationship with suppliers especially if they are a strategic supplier such as a JIT supplier
• Why might a business want to keep a healthy relationship with their strategic supplier (e.g. JIT supplier)?

  It might be hard to find a replacement for the supplier