Average 83.5 days needed to collect business debts

It takes an average of 83.5 days – almost three months – to collect business debts, according to the Malta Association of Credit Management (MACM), which carried out a survey amongst its members.

The average DSO – Days Sales Outstanding or ‘the payment collection ratio’ – was derived by the MACM following a survey conducted amongst suppliers selling on credit in Malta and other creditors hailing from all sectors of the Maltese economy.

MACM said there had been an improvement of 7.43 days compared to last year’s DSO figure, namely 90.93 days. However, this 2013 statistic is still relatively high when compared to the average DSO of 47 days for Europe.

“The average DSO for Malta comes very close to that of Cyprus (85 days), Greece (76 days) and Portugal and Spain (83 days) according to the European Payment Index issued recently by Intrum Justitia,” MACM director Josef Busuttil said.

“Nevertheless, the improvement in the DSO figure indicates an overall improvement in the cash flow that may also have a positive effect on the investment potential of the Maltese business community to the benefit of the local economy at large.”

Debtors represent on average about 40% of the total assets within the balance sheet of most firms, which assets are deemed liquid. Improving DSO would not only improve the creditworthiness of the firms but also releases financial resources that could be directed to further investment.

The DSO Ratio represents the average time taken by customers in settling their invoices due to their suppliers, and is influenced by the amount of debtors and sales turnover in terms of collection days.