Calculating the days in accounts receivable (AR) is key to understanding how long it takes for your business to collect payments after making a sale. This metric, often referred to as Days Sales Outstanding (DSO), helps assess your company’s efficiency in converting sales into cash. Managing AR days well is crucial for maintaining a healthy cash flow, and this blog will explain how to calculate accounts receivable days and why it matters.
What Are Accounts Receivable Days?
Accounts receivable days reflect the average time it takes for customers to pay their invoices. It’s a vital metric for tracking the performance of your collection process. A shorter AR day count indicates that your company is able to collect payments quickly, which is beneficial for maintaining liquidity and managing your day-to-day operations.
Bekijk onze video hieronder:
How To Calculate Accounts Receivable Days: A Simple Approach
To get an estimate of your accounts receivable days, divide your total accounts receivable balance by your average daily credit sales. This gives you an idea of how many days, on average, it takes for your receivables to be paid off.
For instance, if your company has a £50,000 accounts receivable balance and makes an average of £1,370 in credit sales per day, it will take roughly 36.5 days to collect those payments.
Why Do AR Days Matter?
Monitoring your AR days helps you gauge the effectiveness of your credit and collection policies. If the number is too high, it means that customers are taking longer to pay. This ties up your cash and may hinder your ability to cover operating expenses or invest in growth. If you notice that your AR days are increasing, it could signal inefficiencies in your invoicing or payment collection process, which need to be addressed.
Strategies to Reduce Accounts Receivable Days
Reducing AR days can greatly enhance your cash flow. You can do this by:
- Automating invoicing and reminders
- Offering early payment discounts
- Strengthening your payment terms and collection efforts
Using accounts receivable software can also help speed up payment collection and provide real-time visibility into outstanding invoices.
Learn more about B2BE’s Accounts Receivable solution.
About B2BE
B2BE delivers electronic supply chain solutions globally, helping organisations to better manage their supply chain processes, providing greater levels of visibility, auditability and control. We’re driven by a passion for what we do, inspired by innovation, and underpinned by a wealth of knowledge. With over 20+ years of experience, the B2BE teams operate worldwide.
For more information, visit www.b2be.com.