- Days of Collection = (Trade Receivables / Turnover) * 365
- Days of Collection = ((Trade Receivables – Bad Debts)/ (Turnover – Bad Debts of the Cycle) * 365
- It shows the average number of days it takes to collect the company’s receivables.
- This indicator shows whether a company’s receivables are too large compared to its sales. The time it takes to collect receivables is proportional to the speed of collection of receivables.
- A high speed in collecting receivables means a lower probability of losses from bad customers.
- It expresses, in other words, the time the company must wait for cash to flow into its coffers after making a sale.
- Caution: For the days of the indicator to be real, and not just as a measure of comparison, it is necessary
- to subtract bad debts from both parts of the fraction
- Add VAT to turnover
Business actions to improve the Index
- Increasing Turnover with Low or Zero Credit Turnover
- Reduce Total Trade Receivables through early collection, even with a relative decrease in profitability an acceptable discount of Turnover is one that results in a reduction in Turnover less than the corresponding cost of borrowed funds
