average settlement period

Definition

The average time it takes either for a business to pay its creditors or for debtors to pay what they owe.
Average settlement period for creditors = trade creditors x 365 days / credit purchases
Average settlement period for debtors = trade debtors x 365 days / credit sales

Example: For 2010, a company had $30,000 in trade debt and $60,000 in credit sales.
Average settlement period for debtors = trade debtors x 365 days / credit sales = $30,000 x 365) / $450,000 = 24.33 days




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