Average Collection Period calculator
Average Collection Period represents the average number of days it takes the company to convert receivables into cash. This activity ratio is used together with Receivables Turnover Ratio. Average Collection Period formula is:
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Interpretation of Average Collection Period
Average collection period measures the average number of days that accounts receivable are outstanding. This number should be the same or lower than the company's credit terms.
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Definitions and terms used in the Average Collection Period calculator
- Annual credit sales: the amount of revenue generated by a company after the deduction of returns, allowances for damaged or missing goods and any discounts allowed and sold on credit
- Receivables: money owed to a company by customers (individuals or corporations) for goods or services that have been delivered or used, but not yet paid for. In it is also known as Sales on credit.
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