Calculation: (days in the period * average accounts receivable) / net credit sales
Measures the average number of days customers take to pay their bills, indicating the effectiveness of credit and collection policies of the business. This ratio also determines if the credit terms are realistic. The Days in the Period is the number of days in the measurement period, normally 365. Average Accounts Receivable is the average of the opening and closing balances of Accounts Receivable for the measurement period.
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