The average number of days it takes to collect your client invoices / debt. Note, for monthly calculations, we use the change in accounts receivables as the base number. The higher the figure, the less efficient the business is in collecting its client debts. Watch for this over time and look for any deterioration. An overhaul of accounts receivables processes or client communications may be needed. Alternatively, it could reflect the winning of a large account, with a client who perhaps takes longer than average to pay, but who may always do so. If this is the case, assess in conjunction with other measures, such as profitability measures or liquidity measures.

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Definition used:

Your ARD is derived by:

Annual: 365 divided by (Total Income divided by Total Accounts Receivables)

Monthly: (365/12)/(Total Accounts Receivable – Accounts Receivable in month)

Your Average Receivables Days can be improved in a number of ways, including:

• Communicate clear client account terms
• Implement a clear account reminder and collections policy
• Devise payment on order terms
• Establish clear escalation and collection methods
• Implement staff training to ensure policy adherence