Trade receivables turnover (days)

📊 Trade Receivables Turnover (Days)

Formula

The trade receivables turnover (in days) measures how many days, on average, it takes a business to collect money from its credit customers. $$ \text{Trade Receivables Turnover (Days)} = \frac{\text{Average Trade Receivables}}{\text{Credit Sales}} \times 365 $$

Calculation Steps

1. Find the opening and closing trade receivables (debtors) from the statement of financial position.
2. Calculate the average trade receivables: $$ \text{Average Receivables} = \frac{\text{Opening Receivables} + \text{Closing Receivables}}{2} $$
3. Obtain the credit sales for the period (usually from the income statement).
4. Plug the values into the formula above.
5. Round to one decimal place if required.

Worked Example

A trader had the following figures for the year:

Step 1: Average receivables = (15,000 + 25,000) / 2 = $20,000
Step 2: Turnover days = (20,000 / 120,000) × 365 = 0.1667 × 365 ≈ 60.8 days

Interpretation 💡

• A lower number of days indicates the business collects its receivables quickly – good cash flow.
• A higher number suggests slower collection, which may lead to liquidity problems.
• Compare the ratio with previous years or industry benchmarks to assess performance.

Key Points to Remember

1. Always use credit sales, not total sales, unless all sales are on credit.
2. If only year‑end receivables are given, you may use that figure as an approximation (but average is preferred).
3. The result is expressed in days; round to one decimal place for IGCSE answers.