To calculate days in accounts receivable, divide your accounts receivable balance by net credit sales and multiply by the number of days in the period. This formula shows how many days it takes, on average, for your business to turn invoices into cash. Tracking this number helps you spot payment delays, compare your performance to industry benchmarks, and improve your collections process to keep cash flow steady.
Understand the Formula for Days in Accounts Receivable
The formula for AR Days is:
Days in AR = (Accounts Receivable ÷ Net Credit Sales) × Number of Days
Where:
- Accounts Receivable = Total outstanding customer invoices at the end of the period.
- Net Credit Sales = Total credit sales during the same period (excluding cash sales).
- Number of Days = The length of the period being measured (usually 30, 60, or 365 days).
Example: If your AR balance is $50,000, your net credit sales are $300,000, and you’re measuring over a 365-day year:
Days in AR = ($50,000 ÷ $300,000) × 365 = 60.8 days
This means it takes your business about 61 days, on average, to collect payment.
Gather the Required Data
Before calculating, make sure you have accurate financial records. You’ll need:
- Accounts receivable balance from your balance sheet.
- Net credit sales from your income statement.
- The length of the measurement period (monthly, quarterly, or yearly).
Tip: Use only credit sales, not cash sales, since AR represents money owed, not immediate payments.
Perform the Calculation
Apply the numbers into the formula step by step:
- Divide your accounts receivable by net credit sales.
- Multiply the result by the number of days in your measurement period.
Example Calculation (Monthly):
- Accounts Receivable = $25,000
- Net Credit Sales = $100,000
- Period = 30 days
Days in AR = ($25,000 ÷ $100,000) × 30 = 7.5 days
This means your business collects invoices in just over a week.
Compare Against Industry Benchmarks
The average Days in AR varies depending on your industry:
- Retail businesses often have AR Days under 15.
- B2B service providers may average between 30–60.
- Construction or project-based industries may exceed 90 due to longer billing cycles.
Comparing your number against industry benchmarks helps you understand whether your collections process is efficient or needs improvement.
Monitor Trends Over Time
Don’t just calculate AR Days once—track it regularly.
- Improving AR Days means customers are paying faster, which boosts cash flow.
- Worsening AR Days may signal issues like poor credit policies, delayed invoicing, or weak follow-ups.
Tip: Chart your AR Days monthly or quarterly to see how your collections performance changes over time.
Use AR Days to Improve Collections
Once you know your Days in AR, take steps to improve:
- Send invoices promptly after completing work.
- Offer early payment discounts.
- Implement automated reminders.
- Review customer credit terms and tighten them if necessary.
When you combine the calculation with action, you turn AR Days into a tool for stronger financial management.
Example: Days in AR by Scenario
This makes it easier to visualize how changes in AR balances and sales impact collection time.
To find average accounts receivable, add the beginning and ending balances and divide by two to measure cash flow efficiency and customer payment trends.
Calculate net accounts receivable by subtracting allowances for doubtful accounts from total AR to see the actual expected cash inflow for accurate financials.
To calculate gross accounts receivable, total all outstanding invoices before allowances, track unpaid balances, and monitor cash flow for effective collections.
To calculate accounts receivable turnover, divide net credit sales by average receivables to track how quickly customers pay and improve cash flow.
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