How long does it usually take for a company to collect its accounts receivable balance?
Answer
You can say 30-50 days is a moving average. But be sure to note that based on the value of the products being sold it can be longer or shorter. Use an illustrative example like “It might be shorter for a supplier of uniforms for Wendy’s to collect than it would be for a data infrastructure provider”.
Why this matters to bankers
Let’s use the same model brain we used in the last few questions. When modeling out Free Cash Flow and Working Capital (includes AR & Cash), it’s important to understand when Accounts Receivable typically convert to cash to get a future view of AR and Cash, thus getting a future view of Free Cash Flow and Working Capital.