Average collection period is a measurement of the number of days the firm takes to collect money owed.
Average Collection Period = (Accounts Receivables / Sales) x 365
A company has accounts receivable of $4,000 and net sales of $17,000.
Average Collection Period = ($4,000 / $17,000) x 365 = 0.2353 x 365 = 85.9
Therefore, this company’s average collection period is 85.9 days.
- Accounting Tools – Average Collection Period – An explanation of the average collection period, how it is calculated, and how it can be reduced.
- Investopedia – Average Collection Period – Average collection period and how it compares with accounts receivable turnover.
- The Balance SMB – What is the average collection period ratio? – What average collection ratio is and how it is used.