The accounts receivable days formula measures the average number of days it takes your business to convert credit sales into cash. Also known as AR days, it reveals the efficiency of your accounts receivable collection process by measuring how quickly customers pay their invoices.
Sales on credit carry the risk of delayed customer payments or non-payment, which can disrupt cash flow and freeze working capital. A worldwide study by Allianz Trade found that, on average, it takes 59 days for businesses to receive payment, with 20% of companies waiting more than 90 days. Minimizing this lag improves cash inflows and boosts long-term operational health.
Learn about the accounts receivable days formula and how to interpret the results. You’ll also find tips to enhance your credit and collection processes.
What are accounts receivable days?
Accounts receivable days indicate the average time it takes your company to collect payments from customers for credit sales. When a business delivers goods before receiving payment, it records the transaction under accounts receivable on its balance sheet.
The accounts receivable days calculation measures the speed at which outstanding balances are converted into cash. Fewer days imply swift cash collection, indicating effective credit policies. A high number indicates delays in converting credit revenue into cash, locking up operating liquidity.
In corporate accounting, the term “accounts receivable days” is used interchangeably with “days sales outstanding” (DSO). It tracks the ratio of your accounts receivable balance to total sales during a designated number of days. Although total sales reports might indicate growth, a rising days sales outstanding indicates that revenue is trapped in a non-cash account.
Monitoring days sales helps show which customers drag down collection efficiency, which can help you prevent late payments.
Accounts receivable days formula
To calculate accounts receivable days, compare your average accounts receivable balance against your total sales made on credit, then multiply that ratio by the number of days in the period analyzed. The accounts receivable days formula is:
Accounts receivable days = (Average accounts receivable balance / Total credit sales) x Number of days in period
First, calculate average accounts receivable for a designated time frame. Take the starting accounts receivable balance at the beginning of the period, add it to the ending accounts receivable balance at the close of the same period, and divide by two:
Average accounts receivable balance = (Beginning accounts receivable + Ending accounts receivable) / 2
Isolate revenue generated strictly from your credit sales, omitting immediate cash payments, because including them artificially lowers your average collection period. To pull precise numbers, you can use Shopify Finance reports. These simplify the process by letting your team instantly identify total sales, revenue, and balances remaining for any specific time window.
Example accounts receivable days calculation
Here’s an example of a wholesale vendor analyzing performance during a 90-day period:
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Total credit sales for the quarter: $300,000
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Beginning accounts receivable balance: $45,000
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Ending accounts receivable balance: $55,000
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Number of days in period: 90
Determine the average accounts receivable balance for the quarter:
Average accounts receivable balance = ($45,000 + $55,000) / 2 = $50,000
Next, apply these figures to the receivable days formula:
Accounts receivable days = ($50,000 / $300,000) x 90 = 15 days
In this scenario, the average accounts receivable days is 15. This indicates a healthy cash flow. The company collects cash well ahead of the standard net 30 credit terms, optimizing working capital and payment collection speeds.
Why receivable days are important
Knowing your business’s receivable days helps you understand and plan your finances more effectively.
Effects on your working capital
Working capital represents the operational liquidity available to your company. Late customer payments increase your accounts receivable balances, locking up capital in uncollected funds and hurting your cash conversion cycle.
Money trapped in an unpaid invoice can’t fund suppliers, product development, or bulk inventory discount purchases. Improved accounts receivable management unlocks this cash, increases working capital, and reduces reliance on outside credit lines with interest rates that erode profitability.
Effects on your cash flow
Although working capital reflects liquidity needed to repay short-term debts, cash flow tracks money moving in and out of your business. Extending credit terms without diligent oversight can cause cash inflows to lag behind cash outflows, creating cash flow issues.
Tracking receivable days lets you forecast cash needs, while tools like Shopify Balance help optimize the back end of your cash cycle. It delivers payouts within one to three business days, ensuring that once a payment is collected, the funds are cleared and accessible as quickly as possible to minimize your overall time-to-cash.
What is a good AR days number?
A good accounts receivable days number varies widely, based on your industry and your company’s credit terms. According to business-to-business (B2B) accounts receivable software provider Billtrust, top performers collect on their invoices within 28 days, while the median is 46 days. If your terms dictate that payment is due within 30 days, known as net 30, and your business is lower than that, it implies effective credit and collection processes.
When your AR days number begins to exceed your credit terms, it indicates that your credit policy may be too lenient or that collection processes are ineffective. For instance, if you offer net 30 terms but your average collection period is 55 days, your business effectively grants an interest-free loan to your buyers for an extra 25 days.
Tip for reducing your accounts receivable days
Calculating your accounts receivable days provides a helpful baseline, but shortening your collection cycle accelerates cash inflows, freeing up critical working capital to reinvest in your business. Here are some ways to do that.
Incentivize early payments
Accelerate cash inflow and encourage faster payments from buyers by offering early payment discounts. Implementing a 2/10 net 30 credit policy means that while the full invoice amount is formally due within 30 days, the customer receives a 2% discount if they pay within 10 days. This incentive transforms a routine invoice into an immediate savings opportunity. By sacrificing a minor percentage of your total sales margin, you lower your average number of days to receive payment, shoring up your cash flow.
Send proactive payment reminders
Waiting until an invoice becomes past due before contacting a client is a common misstep in credit management. Instead, your accounts receivable processes should incorporate automated, proactive communications.
Sending a polite, automated reminder five days before an invoice reaches its official due date helps ensure the invoice has been approved by the client’s finance department and hasn’t been overlooked. Regularly follow up on overdue invoices to reduce administrative delays and help prevent standard customer payment delays from turning into chronically overdue accounts.
Automate your invoicing and collections
Manual administration slows your AR turnover rate. Making the transition from paper invoicing to a centralized digital platform lets your business distribute invoices instantly when an order is fulfilled. Providing clients with several payment options makes it easier for them to settle outstanding balances. Features like Shopify B2B payment terms are designed for wholesalers or businesses that sell on credit.
Shopify B2B lets you assign specific net terms (such as net 30 or net 60) directly to customer profiles, supporting automated payment reminders, credit card vaulting for automated collection when terms expire, and customizable deposit requirements on Shopify Plus. The easier you make it for a client to pay, the faster your company collects payments, lowering your receivable days.
Receivable days formula FAQ
What is the formula for AR collection days?
The formula for AR collection days is identical to the receivable days formula: divide your average accounts receivable balance by your total credit sales for a time frame, and multiply that amount by the total number of days in that period.
How do you calculate receivable days?
Find your average AR days by adding your beginning and ending accounts receivable balances for a specified period and dividing that number by two. Then, divide the average balance by total credit sales during that period. Finally, multiply it by the number of days in the period.
What is a good accounts receivable days ratio?
A good accounts receivable days ratio generally falls around 30 to 45 days. A good number aligns with or beats your company’s formal credit terms, implying swift cash collection and healthy, efficient collection processes.
