This KPI measures the amount of money that your customers owe your dealership compared with the amount of money that your dealership owes your suppliers.
Example:
Let's say that you sell a product to a customer and they agree to pay you in 30 days time; this is known as a Debtor and is a use of your company's money. A Creditor is the exact opposite of this. You receive product and agree to pay your supplier in 30 days time. The Debtors Creditors Ratio shows the relationship between these two amounts of money.
Example:
A) Debtors = R108,182 B) Creditors = R135,227 C) Debtors Creditors Ratio = 0.8:1 (A ÷ B)
Discussion:
As you can see from the example above, on one hand you are loaning money to other companies (Debtors) and on the other hand you are borrowing money from other companies (Creditors).
Generally speaking, it makes good commercial sense to maintain a balance between these two amounts in that they cancel each other out. In any instance, to make your money work smarter, you always need to have more money in Creditors that you have in Debtors thereby showing a ratio of less than 1:1.