The term "average days in receivables" looks at how long it takes a company to collect its receivables. A receivable is an amount another company or person owes the company for the purchase of a good or service. Companies want a low average days receivable because then the company will collect faster. But there is no good or bad number. For example, a company selling expensive products will usually have more days in receivables than a company selling cheap products.
Find the company's ending accounts receivables and credit sales for the year. Credit sales is on the income statement, and accounts receivables is an asset on the balance sheet. For example, assume a company has accounts receivable of $500,000 and credit sales of $1 million.
Divide the credit sales by 365. In the example, $1 million divided by 365 equals $2,739.726 per day. These are the credit sales per day.
Divide the ending accounts receivable by the credit sales per day to find the average days in receivables. In the example, $500,000 divided by $2,739.726 per day equals 182.5 days.
