Accounts Receivable Turnover Days - Days In Receivables Ratio

We already discussed about Accounts Receivable Turnover Ratio in our previous article but here we study about Accounts Receivable Turnover Days.

Accounts Receivable Turnover Days Definition

What is Accounts Receivable Turnover Days?

This ratio shows how many days in a year the company takes to collect debts due from its customers. The Accounts Receivable Turnover Ratio only shows how many times the company collects its debts from customers but fail to show the exact days in collecting dues from customers and hence we can easily the performance of the management of the company in receiving debts from its customers within the time frame or not. This ratio is also known as Debtors Turnover Ratio In Days or Average Collection Period or Days In Receivables.

Accounts Receivable Turnover Days Formula

  365 / Accounts Receivable Turnover

Example

Let say the company Accounts Receivable Turnover is 2.6 times then to check how many days the company takes to receive the payments from its customers we use the above formula:

  365 / 2.6 = 140 Days

Analysis / Interpretation:

Hence, the management of the company takes 140 days in collecting debts due from its customers. in year. If the company allowed period of 3 Months to customers to make payments, then this is not good performance of the company because the payment must be made upto 90 days. On the other hand if the company allows 6 Months to customers to make payment, then it is good performance of the company in collecting debts due from loyal customers.

Importance / Significance

1. By knowing the days, we actually check how many days the company takes to collect debts dues from its customers.

2. It is a measuring yard for the investors and creditors to judge the performance of the company in collecting Receivables.

So Accounts Receivable Turnover Ratio In Days tells us how many days the management of the company takes to receive Cash From its Customers.