Measures the number of days it takes a business to collect any money owed by its customers (ie its debtors). It is calculated by dividing the average receivables (debtors) over the period by the value of sales made on credit over the period (or figure for revenue if this figure is not available) and multiplying the resultant figure by 365. NB 1 Average receivables (debtors) should be used ie opening receivables (debtors) + closing receivables (debtors) divided by 2. Closing receivables (debtors) may be used providing this is representative. 2 Revenue (turnover) can be substituted for the credit sales figure if the latter is unavailable. example, if a business’s debtors at any one time total £400,000 and credit sales amount to £2 million, then it takes credit customers 73 days on average to settle their bills (400,000 / 2,000,000 x 365). The figure should be viewed in relation to previous figures rather than similar businesses, as a higher figure may not indicate inefficiency in collecting debts, just differences in credit terms. Receivables’ days should be kept as low as possible to enable funds to be ploughed back into the working capital cycle. If it is too long then, the firm may encounter problems in paying their own debts so much so that they are forced to borrow money in order to settle their debts. Trends upwards might suggest that the company’s credit control was beginning to weaken. Increases may also be due to changes in company settlement policy, and / or a new customer base demanding longer settlements.