What is the formula for Days Receivable?

• A. Days in period / [Net Sales/AR]
• B. Avg time in days to collect receivables
• C. Lower is better
• D. AR Turnover is a different ratio

Answer: (A)

Days Receivable shows how long, on average, it takes to collect cash from customers after a sale. The correct formula is Days in period divided by Net Sales per Accounts Receivable, written as Days in period / (Net Sales / Accounts Receivable). This works because Net Sales / Accounts Receivable is the turnover rate of receivables. Taking the reciprocal gives the average number of days per turnover, and multiplying by the period length yields the average days to collect.

Equivalently, using average accounts receivable and average daily sales, Days Receivable = Average AR / (Net Sales / Days in period). A common alternative form is 365 / AR turnover, since AR turnover = Net Sales / Average AR. The other descriptions are not formulas for Days Receivable; they describe the concept or relate to related ratios.