What does high debtors of 180 days mean?

General
1

In the screener, in fundamental analysis CONS is Company has high debtors of 180 days
What does it mean? Can someone please explain?

2

In fundamental analysis, the term “debtors” refers to the amount of money owed to the company by its customers, also known as accounts receivable. The phrase “high debtors of 180 days” means that, on average, it takes 180 days for the company to collect payments from its customers after issuing an invoice.

This can be considered a con or a negative factor because:

  1. Cash Flow Issues: The company has to wait a long time to receive the money it’s owed, which can create cash flow problems. The longer it takes to collect money, the less cash the company has on hand to pay its own bills, invest, or operate smoothly.

  2. Credit Risk: A high debtor period may indicate that the company is extending generous credit terms to customers, which could result in non-payment or bad debts, particularly if some customers default.

  3. Operational Efficiency: It might reflect inefficiencies in the company’s billing or collection processes, suggesting that the company is not managing its working capital efficiently.

In summary, “high debtors of 180 days” means it takes the company around six months to collect payments, which can strain cash flow and indicate risk if customers delay payments or fail to pay altogether.

Disclaimer:
This information is fully given by ChatGPT-4 (OpenAI).

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3

Yes - this will result in higher working capital borrowing which will mean higher interest cost. Few other aspect which you should look at are.

  1. How many days are for accounts payble - creditors days. There could be certain business where receivable cycle will be long at the same time the creditors days will be equally long. This is ok.
  2. Nature of business matters. Ship builders and Aeroplane manufacturers, these days could be longer and this is quite normal.
  3. Analyst will look at ageing of receivables. Debtors days represents one numbern, based on a formula. This does not tell you how good or bad these debts are. What bankers and analyst will look at is ageing of debtors. This basically places debt into different days bucket so that analyst will know how good or bad the receivables are. Just by looking at debtors days, you cannot assess if it is good or bad.
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