Average days's sales uncollected means the time period of the collection of money from our customers. When we sell goods to our customers on credit, we have to wait for getting the amount of sales. To know the waiting period is important because we have to manage money from other sources in same period. We will not get money from our customers in this period, so, we have to buy new inventory or repay our supplier through other sources instead payment from our debtors. This period also affects our cash flow. This is second step of cash conversion cycle.
If this average days'sales uncollected will be low, it will be benefited for us because we can get cash more fastly from our customers. It is also called average collection period.
Following is its formula = 365/ Debtor turnover ratio
or - 365 / Net Credit Sales / Average Debtors
Example
If debtor turnover or receivable turnover will be 10 times, it will decrease average days sales uncollected. After this, ADSU will b 36.5 or 37 days. This days tells us that we have to wait 37 days for getting money from our customer. Every customer ( Average) will on the end of 37 days.
If this average days'sales uncollected will be low, it will be benefited for us because we can get cash more fastly from our customers. It is also called average collection period.
Following is its formula = 365/ Debtor turnover ratio
or - 365 / Net Credit Sales / Average Debtors
Example
If debtor turnover or receivable turnover will be 10 times, it will decrease average days sales uncollected. After this, ADSU will b 36.5 or 37 days. This days tells us that we have to wait 37 days for getting money from our customer. Every customer ( Average) will on the end of 37 days.
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