days accounts receivable (Days A/R)

  

Definition

The average number of days a company takes to collect payments on goods sold.

Numbers much higher than 40 to 50 days indicate collection problems and significant pressure on cash flows. Numbers much lower than 40 to 50 days indicate overly-strict credit policies that might prevent higher sales revenue. Also called days sales in receivables or debtor days. Formula: Average accounts payable x 365 √∑ sales revenue.


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