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 2022                   $150,000

Accounts Payable at 30 June 2023                   $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.

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

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