How the calculation works
Average receivables = (opening + closing) ÷ 2. Turnover = credit sales ÷ average receivables. Collection days = period days ÷ turnover.
A worked example
Opening receivables of 8,000, closing of 12,000 and sales of 120,000 yield turnover of 12. Over 365 days, collection time is about 30.42 days.
Use the result carefully
Use figures from the same reporting period. A ratio summarizes a portfolio; it is not the actual payment time of each invoice.