How much working capital can I release by cutting debtor days?

Multiply your daily revenue (annual revenue ÷ 365) by the number of days you want to cut. If your daily revenue is £3,000 and you cut debtor days by 10, you release approximately £30,000 in working capital. For most growing businesses this is material.

Should I offer early-payment discounts to reduce debtor days?

Only if the discount cost is less than the benefit to your cashflow or less than the cost of alternative financing. A 2% early-payment discount on 30-day terms equates to an annualised rate of approximately 24% — generous to the customer. Consider whether a smaller discount (0.5–1%) would achieve the same behavioural change at lower cost to you.

How to Reduce Debtor Days in Your Business

Calculate your current debtor days

Before you can improve, you need a baseline. Debtor days = (trade debtors on your balance sheet ÷ annual revenue) × 365. If your trade debtors are £120,000 and your annual revenue is £800,000, your debtor days are approximately 55. Compare this against your stated payment terms: if your terms are 30 days and your debtor days are 55, you are collecting on average 25 days late.

Break the figure down by customer if possible — you may find that a small number of accounts are responsible for most of the delay.

Invoice immediately and accurately

Many businesses delay their own invoicing — sending invoices in batches at end of month, or waiting until project completion rather than invoicing at each milestone. Every day you delay sending an invoice is a day added to your collection cycle before you have even started.

Invoice on the day work is completed or goods are delivered. Ensure every invoice includes the correct purchase order number, the right billing address, and unambiguous payment instructions. A rejected or queried invoice resets the payment clock and can add weeks to your collection time.

Switch regular customers to direct debit

For customers you invoice monthly or on a regular schedule, a direct debit mandate removes the payment initiative from the customer entirely. GoCardless and similar services integrate with most UK accounting software and allow you to collect on your terms rather than chasing the customer to act. The direct debit guarantee provides customers with protection, which removes most objections.

Direct debit typically reduces late payment from regular customers to near zero and eliminates the administrative overhead of chasing the same accounts month after month.

Implement a structured chasing schedule

Automated payment reminders — sent at, say, five days before the due date, on the due date, and at seven and fourteen days overdue — catch most late payments before they become a serious problem. Most accounting packages can send these automatically without staff involvement.

Reserve personal contact (phone call or direct email from an account manager) for invoices that pass 14 days overdue. A direct conversation frequently resolves a genuine administrative delay in minutes. See also: how to chase late invoices.

Consider selective invoice finance for large accounts

If a small number of large customers account for most of your debtor book and they are slow payers by nature (large corporates, government bodies, NHS trusts), selective invoice finance allows you to advance cash against those specific invoices without waiting for collection. The facility typically advances 80–90% of the invoice value within 24–48 hours of issuance.

This is a commercial financing arrangement, not a consumer product. Costs vary by provider and invoice value; compare the finance cost against the working capital benefit of receiving funds 30–60 days earlier.