Activity ratio measures the average time the company takes to collect cash for credit sales. The average ratio is calculated as follows:
((Beg. Accts Rec + End. Accts Rec) / 2) * No. Days in Period
Sales (Net) (v1030.00)
where Accounts Receivable is (v2020).
A low Days in Receivables (v6065.00) ratio does not reliably indicate an efficient collections department; a restrictive credit policy also would decrease this ratio. The longer the collection period, the greater the company's working capital investment.