Trade creditors, also known as accounts payable, are amounts by a company to its suppliers for goods sold or services provided on credit. 

When a company purchases products or services from its suppliers without making an immediate payment, it creates an account payable or trade creditors (a liability to the business, shown in the balance sheet).

Trade creditors make up a vital part of working capital and can have a significant impact on its cash flow and financial health. Accordingly monitoring their payments is critical. 

Trade Creditor Days measurement is used by most businesses that receive credit. Trade Creditor Days measures the average number of days it takes for a company to make payment to its suppliers.

It is calculated as follows:

(Average Trade Creditors / Purchases on Credit) * Number of Days

If you wanted to calculate the average amount of days that it took for your business to pay its creditors last financial year, then:

Accounts Payable at 30 June 2024                   $150,000

Accounts Payable at 30 June 2025                   $125,000

Total Purchases on credit                                $1,500,000

(150,000 + $125,000) / 2 / 1,500,000 * 365 = 34 days.

Generally, the larger the number of days the better.

10 Steps to improve your trade creditors:

1.         Track All Payables - Use accounting software to monitor due dates, amounts, and payment status.

2.         Segment Creditors by Priority - Identify critical suppliers vs. non-essential ones to allocate payments wisely.

3.         Create a Payment Calendar - Schedule payments to avoid late fees and maintain consistency.

4.         Avoid Overordering - Don’t let credit tempt you into buying more than you can sell.

5.         Communicate Proactively - Keep creditors informed about your financial situation and plans.

6.         Be Transparent - Honesty about challenges builds long-term goodwill.

7.         Attend Industry Events - Build rapport with creditors beyond transactions.

8.         Respond Promptly - Ask for extended payment windows or installment options.

9.         Request Early Payment Discounts - If cash flow allows, take advantage of incentives.

10.       Build a Contingency Fund - Prepare for unexpected cash crunches to avoid default.

If you would like to discuss further, please contact us:
 

McNamara & Company - Chartered Accountants, located minutes from the Melbourne CBD
 www.mcnamaraandco.au/contact-us
 Phone +61 3 9428 1062
 Email admin@mcnamaraandco.au

Please refer to disclaimer at the bottom of the page.