How Efficient is Jen Industries in Collecting Accounts Receivable?
How long does it take Jen Industries to collect on its sales?
Based on the data provided, Jen Industries had sales of $32 million this year and an average accounts receivable of $0.8 million per day. On average, how long does it take to collect on its sales?
Answer:
Jen Industries takes approximately 3,331 days (or just over 9 years) to collect on its sales.
To determine how long it takes Jen Industries to collect on its sales, we need to calculate the average accounts receivable turnover, which is the number of times per year that the company collects its average accounts receivable balance.
First, we calculate the average accounts receivable balance:
Average accounts receivable = $0.8 million per day x 365 days per year = $292 millionNext, we calculate the accounts receivable turnover:
Accounts receivable turnover = Sales / Average accounts receivable = $32 million / $292 million = 0.1096Finally, to determine how long it takes to collect on its sales:
Days to collect on sales = 365 / Accounts receivable turnover = 365 / 0.1096 = 3,330.58Therefore, on average, it takes Jen Industries approximately 3,331 days (or just over 9 years) to collect on its sales.