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# What Are Days Beyond Terms?

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Most business owners already know the importance of a credit score, but do you know how itâ€™s calculated? One factor that weighs into a credit rating is DBT, or Days Beyond Terms. Whether youâ€™re looking at your business credit report or plan to extend credit to customers, youâ€™re likely to come across DBT. Hereâ€™s a closer look at what this term means in the business credit world and how itâ€™s calculated.

## What does Days Beyond Terms mean?

Days Beyond Terms (DBT) measures how frequently a business makes late payments to its suppliers. When credit bureaus calculate abusinessâ€™s credit score, theyâ€™ll factor DBT into the equation as it accurately shows how capable the business is of making on-time payments. To find out a customerâ€™s DBT average, you can simply run acredit check. Itâ€™s also simple to calculate your own DBT, using a formula weâ€™ll provide below.

## .css-g8fzsc{padding:0;margin:0;font-weight:700;}Why is Days Beyond Terms important?

Understanding how to calculate DBT is useful whether youâ€™re extending credit to a customer or thinking of taking out a loan of your own. A high average DBT makes it more difficult for your business to access favorable finance terms or negotiate for credit. If you want a higher credit rating, it pays off to pay your suppliers on time and reduce your average DBT.

At the same time, if you take on a customer with a high average DBT, this means they have form for not paying their bills on time. Thatâ€™s something to be aware of because it means theyâ€™re also likely to make late payments. Knowing the DBT puts your accounts receivable on alert, so that you can mitigate the impact of late payments with shorter payment terms or lower credit limits.

## How is Days Beyond Terms calculated?

To find out your businessâ€™s DBT average, you can use the following formula:

To fill in these values, youâ€™ll need to gather all paid invoices for the period in question. Add together the total value of these invoices. Youâ€™ll also need to look at the due date for each invoice, comparing this to the date that each invoice was paid. You can use negative numbers if you pay invoices before the due date.

For example, imagine that Company ABC wishes to measure its average DBT for the month of January. The companyâ€™s accountant gathers Januaryâ€™s invoices and inputs them into the table below:

 Invoice Value Due Date Date Paid Days in Arrears Invoice Value x Days Overdue Invoice 1 1000 Jan 5th Jan 15th 10 10,000 Invoice 2 500 Jan 10th Jan 15th 5 2500 Invoice 3 1500 Jan 20th Jan 15th -5 -7500 SUM 3000 5000

To calculate the DBT, you would divide 5000 by 3000 for an average value of 1.67. This may or may not be a good thing â€“ itâ€™s important to compare it to the industry average to place it in context.

## How does Days Beyond Terms vary by industry?

As withpayment terms, some industries have much higher average DBTs than others. In an ideal world, all businesses would simply pay their suppliers on time, every time. To really understand how a potential customer measures up, youâ€™ll need to compare their average DBT to others in the same sector. Manufacturing, mining, construction, and admin services typically have a higher average DBT than education and arts and entertainment, for example.According to Experian, 80% of US businesses have a DBT between zero to fifteen days, with the average for all industries being seven days.

Whether youâ€™re applying for finance, improving your workflows, or determining a customerâ€™s credit terms, be sure to weigh DBT into the equation.

#### We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.

## Interested in automating the way you get paid? GoCardless can help

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