Business Accounts Receivable Days
What it is, how it’s calculated, and why it’s important to small business owners.
Calculation
Accounts Receivable Days = (Accounts Receivable ÷ Annual Revenue) × 365 Days
Definition
Accounts Receivable Days is the number of days until a company gets paid for its products or services. It is calculated by dividing Accounts Receivable (total money owed to the company) by Annual Revenue and then multiplying that by the number of days in a year.
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How it is Used
Accounts Receivable Days is useful in determining how well a business collects payments from its customers. Typically, businesses aim to decrease Accounts Receivable Days as a way of maximizing the amount of cash they have on hand at any given point in time.
Ways to Improve Accounts Receivable Days
A great way to improve Accounts Receivable Days is to offer different credit terms to different customers based upon the riskiness of their credit profile. Customers with riskier credit profiles should be asked to pay up front. Another way to improve Accounts Receivable Days is to selectively increase prices for products or services when possible. If done effectively, this can boost both cash flow and net profit margins.
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