Receivables Conversion Period is calculated by dividing the number of days in the reporting period by the accounts receivable turnover ratio. A shorter receivables conversion period is preferable as it indicates faster cash collection for the business. For example, the annual average receivables conversion period is calculated as:
$$Receivables\; Conversion\; Period \mmlToken{mo}[linebreak="auto"]{=} \frac{Average\; Accounts\; Receivable}{Revenue}\times 365\; days$$
Receivables Conversion Period FAQ
What is the receivables conversion period?
It measures how long it takes a company to collect its receivables.
How do you calculate it?
Divide average accounts receivable by revenue and multiply by 365 days.
