- Accounts Receivable Days (AR Days)
updated 7 months ago
(Total Accounts Receivable / Annual Revenue) * 365
Accounts receivable days is the number of days that a customer invoice is outstanding before it is collected. The point of the measurement is to determine the effectiveness of a company's credit and collection efforts in allowing credit to reputable customers, as well as its ability to collect cash from them in a timely manner.
The measurement is usually applied to the entire set of invoices that a company has outstanding at any point in time, rather than to a single invoice. When measured at the individual customer level, the measurement can indicate when a customer is having cash flow troubles, since it will attempt to stretch out the amount of time before it pays invoices.
Tip: What is an effective way to track the trend?
An effective way to use the accounts receivable days measurement is to track it on a trend line, month by month. Doing so shows any changes in the ability of the company to collect from its customers. If a business is highly seasonal, a variation is to compare the measurement to the same metric for the same month in the preceding year; this provides a more reasonable basis for comparison.