Account Receivable Calculator

What is Account Receivable?

Account receivable (also called accounts receivable) represents the money that customers owe to your business for goods or services provided but not yet paid. It's a key component of your company's working capital and financial health.

Tracking account receivable helps you understand:

• How quickly your customers pay their invoices
• Your cash flow position
• Your company's creditworthiness
• Potential bad debt risks

How to Calculate Account Receivable

The basic account receivable calculation is straightforward:

However, several key metrics help you analyze your receivables more effectively:

Days Sales Outstanding (DSO)

DSO measures how long it takes for customers to pay their invoices:

A lower DSO indicates better cash flow management.

Receivables Turnover Ratio

This ratio shows how efficiently your company collects payments:

A higher ratio indicates better collection efficiency.

Key Metrics

Understanding these metrics helps you manage your receivables effectively:

1. Account Receivable Balance - The total amount of money owed to your company
2. Days Sales Outstanding (DSO) - Average number of days it takes to collect payments
3. Receivables Turnover Ratio - How efficiently you collect payments
4. Bad Debt - Amount of receivables that are unlikely to be collected
5. Allowance for Doubtful Accounts - Estimate of bad debt that should be set aside

Example Calculation

Let's look at an example to see how these calculations work in practice.

Scenario

A company has:

• Total sales for the year: $500,000
• Cash received during the year: $420,000
• Average account receivable: $80,000

Calculations

1. Account Receivable = $500,000 - $420,000 = $80,000
2. DSO = ($80,000 / $500,000) × 365 = 61.2 days
3. Receivables Turnover Ratio = $500,000 / $80,000 = 6.25 times

This means:

• The company takes about 61 days to collect payments
• It collects payments 6.25 times during the year