How to Cut Debtor Days: A Credit Control Playbook for UK SMEs
Late payment is the largest self-inflicted cash problem in UK SMEs. Ten days off debtor days on £5m of revenue frees roughly £137,000 of cash — permanently, and at no cost of capital.
Most SMEs treat collections as an escalation process: chase when the balance becomes uncomfortable. That guarantees the conversation happens after the invoice is already late, with the least leverage and the most friction. A collections function that runs to a calendar instead of to a threshold collects the same money three to four weeks earlier.
Measure the right thing first
Total debtor days hides the picture. Split it three ways before doing anything else: by customer, by invoice age bracket, and by root cause of delay. In practice a small number of accounts and a small number of causes explain almost all of the overdue balance.
| Age bracket | What it usually means | Action |
|---|---|---|
| 0-30 days | Normal terms, no action required | Automated reminder three days before due |
| 31-60 days | Process failure — wrong PO, wrong contact, invoice not received | Phone the accounts payable contact, not email |
| 61-90 days | Dispute or deliberate stretching | Escalate to the commercial owner of the relationship |
| 90+ days | Collectability genuinely in question | Stop supply decision, formal demand, provision review |
The causes that actually create delay
- The invoice never reached the payables inbox, or reached a person who left.
- A purchase order number is missing, so the invoice sits unmatched.
- Terms were agreed verbally by sales and differ from the terms on the invoice.
- The customer runs a fixed payment run and your invoice missed the cut-off by two days.
- A small disputed line is holding up the whole invoice value.
Only the last two are commercial. The rest are administrative, which is good news — they are fixable without a difficult conversation.
The weekly cadence
- Monday: refresh the aged debt report and flag every invoice crossing a bracket this week.
- Monday: send pre-due reminders for anything falling due in the next five working days.
- Tuesday: phone every account in the 31-60 bracket — email alone resolves administrative failures slowly.
- Wednesday: commercial owner contacts anything 61-90 days, with the account history in front of them.
- Thursday: log every promise-to-pay with a date, and diarise the follow-up for the day after.
- Friday: reconcile receipts, close resolved items and record the cause code for each one.
Cause codes are the part most teams skip and the part that compounds. After two months you can see whether your problem is invoicing accuracy, contact data, or genuinely slow payers, and fix the system rather than the symptom.
Terms that get paid
- Invoice on the day of delivery, not at month end — every day of delay is a day of financing.
- Put the PO number, contract reference and named payables contact on the invoice face.
- State the statutory interest entitlement on every invoice, even if you never charge it.
- Offer bank transfer details prominently; make paying easier than filing.
- For new accounts over a threshold, take a credit check and set a limit before the first order, not after the first default.
What this is worth
The cash released equals daily revenue multiplied by the reduction in debtor days. At £5m of annual revenue, one day is roughly £13,700. A ten-day improvement is £137,000 of permanent working capital release — typically more than an SME's entire overdraft facility, and it costs nothing to hold.
Doing this in MouCFO
MouCFO's AR/AP module ages every open invoice, lets you map each one to an expected week so it flows straight into the 13-week cash forecast, and drafts the collections commentary for the board pack from the actual ageing profile rather than a summary total.
Frequently asked questions
How do you calculate debtor days?
Trade debtors divided by credit sales for the period, multiplied by the number of days in the period. Use the count-back method for seasonal businesses: work backwards through recent months of sales until the debtor balance is exhausted, which avoids the distortion an averaged calculation creates.
What is a good debtor days figure for a UK SME?
For 30-day terms, anything under 40 days is strong and 45 to 55 is typical. Above 60 days on 30-day terms means collections is reactive rather than scheduled, not that customers are unusually difficult.
Can UK businesses charge interest on late payments?
Yes. The Late Payment of Commercial Debts (Interest) Act 1998 entitles a business to statutory interest at the Bank of England base rate plus 8%, plus a fixed compensation sum per invoice, on overdue commercial debts. Most SMEs never invoke it, but stating the entitlement on the invoice materially changes payment behaviour.