Receivables are the money owed to a firm by customers. Days' sales in receivables translates receivables turnover to the number of days that it takes to collect on sales. Another term for this ratio is average collection period (ACP). The formula to find days' sales in receivables is:

days' sales in receivables = 365 days/receivables turnover

or in expanded form

days' sales in receivables = 365 days/(sales/accounts receivable)

This article demonstrates through example how to find days' sales in receivable. Information from the following problem is used.

The Qwerty company is reviewing asset management. Last business period the company had \$87,000 in sales. \$23,000 was in accounts receivable. What is the days' sales in receivables?

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## Step 1

Gather the needed information.

sales = \$87,000
accounts receivable = \$23,000

## Step 2

Find receivables turnover.

receivables turnover = sales/accounts receivable
receivables turnover = \$87,000/\$23,000
receivables turnover = 3.78

## Step 3

Plug the information into the days' sales in receivables formula.

days' sales in receivables = 365 days/receivables turnover
days' sales in receivables = 365 days/3.78

## Step 4

Solve to find days' sales in receivables.

days' sales in receivables = 365 days/3.78
days' sales in receivables = 96.56

There are 96.56 days of sales in receivables.

Keep in mind that if the sales and receivables are from a time period other than an annual 365 day time period, the above formula will not be divided by 365 days but by the number of days from which the information is drawn.

## Step 5

Understand the solution. This is a simple and easy to understand financial ratio. A days' sales in receivables of 96.56 means that there are 96.56 days worth of sales still pending in receivables.

Generally speaking, the smaller this number is the more eficiently the company is running. Cash flow immobile in receivables is not adding value to the company.

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