How healthy are your receivables?
Every invoice you send is money the business has earned and does not have yet. Compare how fast that gap closes with the terms you print on your invoices.
Receivables turnover is annual credit sales divided by average receivables; 365 divided by that gives average days to collect. The days beyond your stated terms, times average daily sales, is the cash that would be released if everyone paid on time.
The math
How this works
What is receivables turnover and how do you calculate it?
Receivables turnover is the number of times a year you collect the money customers owe you. Divide your credit sales for the year by your average receivables balance, which is the balance at the start of the year plus the balance today, divided by two. A turnover of 9 means the full receivables balance is collected and rebuilt about nine times a year. Higher turnover means cash comes back faster. Because only invoiced sales create receivables, sales you collect on the spot are taken out of the top of the calculation.
What is a good average collection period?
The average collection period is 365 divided by your receivables turnover, and the figure to judge it against is the terms you give customers. Collecting in 35 days on net-30 terms is close to normal friction. Collecting in 55 days on the same terms means nearly a month of extra cash sitting with customers. The useful target is your own terms plus a few days, not a number from another industry. Tracking the gap month to month matters more than the level, because a widening gap shows up before a bad debt does.
How do you get customers to pay invoices on time?
Most late payment comes from friction rather than refusal. Invoicing the day the work is finished, naming the due date rather than the terms code, and offering a payment method the customer already uses all shorten the wait. A short reminder a few days before the due date prevents more delay than a firm one after it. For larger jobs, a deposit or progress billing moves part of the money to the front of the work. When one customer is consistently slow, tighter terms or a deposit on the next job is a fair conversation to have.
Questions people ask
What if I collect every sale on the spot?
Set the share of sales on credit to zero and these measures will not apply, because receivables only exist when you invoice and wait. Collecting at the time of the work is the fastest cash position a business can have. If you invoice even a small share, enter that share to see how long that part of your money takes to arrive.
Why does it ask for receivables at the start of the year and today?
Turnover compares a year of sales with a typical receivables balance, so an average of the two endpoints is fairer than a single day's snapshot. One date alone can be unusually high or low because of a big invoice or a seasonal peak. If your business swings a lot through the year, averaging more month-end balances by hand will give you a steadier figure.
What does cash freed if customers paid on terms mean?
It is an estimate of how much money would be in your account instead of in receivables if everyone paid by the due date. The arithmetic takes your average credit sales per day and multiplies it by the days you are running beyond terms. It is a one-time release of cash, not extra profit, because the sales were already earned.
Is a rising receivables balance a bad sign?
Not on its own. Receivables grow naturally when sales grow, which is why this page looks at days to collect rather than the balance. The signal to watch is receivables climbing faster than sales, or the collection period stretching further past your terms, which means the same money is taking longer to come back.
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This is an estimate to help you think, not financial, tax or legal advice. Finli is not a bank and does not lend. Your own numbers, and your banker, beat any calculator.