Average Collection Period Calculator
Calculate the average time it takes to collect accounts receivable
Calculate Average Collection Period
The amount your business is owed by customers
Total sales made on credit during the period
Number of days customers have to pay (e.g., Net 30)
Collection Period Analysis
Example Calculation
ABC Company Annual Analysis
Accounts Receivable: $25,000
Annual Credit Sales: $100,000
Time Period: 365 days
Credit Terms: Net 30 days
Calculation Steps
1. Average Collection Period = ($25,000 × 365) ÷ $100,000
2. = $9,125,000 ÷ $100,000
3. = 91.25 days
4. Receivables Turnover = $100,000 ÷ $25,000 = 4 times/year
Result: Collections take 91.25 days (vs 30-day terms)
Industry Benchmarks
*Typical collection periods by industry
Collection Performance
≤ Credit Terms
Excellent performance
Strong cash flow
Terms + 33%
Acceptable range
Monitor closely
> Terms + 33%
Needs attention
Review policies
Key Concepts
Collection Period
Days to collect receivables
Accounts Receivable
Money owed by customers
Turnover Ratio
Collections frequency per period
Credit Terms
Payment deadline (e.g., Net 30)
Understanding Average Collection Period
What is Average Collection Period?
The average collection period measures the number of days it takes for a business to collect payments from customers who bought goods or services on credit. Also known as "Days Sales Outstanding" (DSO), this metric is crucial for cash flow management.
Why It Matters
- •Cash flow planning and management
- •Credit policy effectiveness assessment
- •Customer payment behavior analysis
- •Working capital optimization
Calculation Methods
Standard Formula
ACP = (Accounts Receivable × Days) ÷ Total Credit Sales
Turnover Method
ACP = Days ÷ Receivables Turnover Ratio
Daily Sales Method
ACP = Accounts Receivable ÷ (Credit Sales ÷ Days)
Impact on Business
- • Shorter periods = Better cash flow
- • Longer periods = Potential cash flow issues
- • Compare with industry benchmarks
- • Monitor trends over time