Glossary of Business Credit Terms

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Days Beyond Terms - DBT

What are Days Beyond Terms (DBT)?

Days Beyond Term (DBT) refers to the average of the number of days it takes for any business to pay its overdue bills, after the passing of the initial due date. For example, let’s say a business has to pay its creditors within the next 20 days. However, it pays them on the 25th day. Here, the DBT would be 5. If the business had managed to make its payment prior to the due date, the DBT would have been zero.

How Is Days Beyond Terms Used?

Day Beyond Terms are used to identify the average number of days a borrower is late with his/her payment. In the case of reporting, the first thirty days of non-payment are not reported. DBT is used after 30 days. Therefore, a DBT of 5 means that the borrower took 35 days to past the due date to cover his/her dues. 

How to Calculate Days Beyond Terms? 

It is quite easy to calculate Days Beyond Term. All you need to do is multiply the total amount you owe by the arrear if there are multiple payments and arrears. Multiply the right payment with the right arrear and then take its sum. Then, divide the value by the sum of the payables.
For example, let’s say you owed $10,000 by May 20th, which you paid on June 25th. You further owed $10,000 which were due on June 5th, but you paid them on July 12th. Here, the DBT would be (10,000*5) + (10,000*7)/20,000= 6.

How Does Days Beyond Terms Affect Business Credit Score?

DBT affects business credit score negatively. Your credit score is improved by timely payments as it showcases your creditworthiness. It is therefore understandable that any indicator that suggests that you don’t make your payments on time is likely to affect your credit score negatively.

How to Improve Your Credit Score with Days Beyond Terms?

If you wish to improve your credit score, your goal should be to strive for a 0 DBT score. Make sure that you make all your payments on time. In case emergencies arise and you are unable to avoid late payments, try to keep DBT at a low. The lower your DBT is, the better it is for your credit score.

The Importance of Days Beyond Terms

Days Beyond Terms is an essential indicator for creditors. They can gauge a given borrower’s past payment patterns and hence assess the likelihood of timely payments in the future. For instance, if a given borrower is known for being consistently late with their payment, it may signal a creditor not to trust them. DBT is also important because of the effect they have on credit scores. It can also help creditors analyze the cause behind delinquent payments.

 
DBT also signal at cash flow management issues. For a business, this is quite alarming. What might be a DBT of 2 today might increase in the future if the underlying issue is not solved. Therefore, it is essential to pay heed to the value and try to reduce it.

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