Debtors Turnover Ratio

Debtors Turnover Ratio =        Credit sales
                         ---------------------------
                          Average Amount Receiveable
Average Amount Receiveable = Opening Debtors and BR + Closing Debtors and BR
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                                                         2
Debtors Collection Fund Ratio = Debtors + BR x 365
                               --------------
                                Credit Sales

The result of this ratio gives a rough estimate of average lenght of time the customers a/c remains outstanding. This may be confirmed with the actual no. of days of credit given and it is a measure of testing efficiency of the credit and collection department. Average Credit period is 45 days. A lower Ratio indicates ineffective credit policy of the management. A reasonable credit period is given to customers.

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