Days Receivable Ratio Calculator

Formula

The formula to calculate the Days Receivable Ratio (DRR) is:

\[ \text{DRR} = \left( \frac{\text{AR}}{\text{ACS}} \right) \times 365 \]

Where:

Days Receivable Ratio (DRR): Also known as the average collection period, this financial metric measures the average number of days it takes for a company to collect its accounts receivable. This ratio is important for assessing the efficiency of a company’s credit and collection policies. A lower days receivable ratio indicates that the company is collecting its receivables more quickly, which can improve cash flow and reduce the risk of bad debts. Conversely, a higher ratio may indicate that the company is taking longer to collect its receivables, which could be a sign of inefficiency or potential cash flow issues.

Let's say the accounts receivable (AR) is $50,000 and the annual credit sales (ACS) is $300,000. Using the formula:

\[ \text{DRR} = \left( \frac{50,000}{300,000} \right) \times 365 \approx 60.83 \, \text{days} \]

So, the days receivable ratio (DRR) is approximately 60.83 days.