Collection Period Calculator
Calculate average collection period to track accounts receivable efficiency
Calculate Collection Period
Amount owed to you by customers on credit
Total sales made on credit during the period
Period duration (usually 365 for annual)
Payment terms you offer customers (e.g., Net 30)
Collection Period Analysis
Needs Improvement
Collection period exceeds acceptable range. Consider revising collection policies, offering early payment incentives, or tightening credit terms.
Daily Metrics
Credit Terms Comparison
Formula used: ACP = (AR × Days) / Total Credit Sales
Where: ACP = Average Collection Period, AR = Accounts Receivable ($25,000.00)
💡 Cash Flow Impact
Example Calculation
Scenario
Average Accounts Receivable: $25,000
Total Credit Sales: $100,000
Period: 365 days (1 year)
Credit Terms: Net 30 days
Calculation
ACP = (AR × Days) / Total Credit Sales
ACP = ($25,000 × 365) / $100,000
ACP = $9,125,000 / $100,000
ACP = 91.25 days
Alternative: $100,000 / $25,000 = 4 times turnover
Then: 365 / 4 = 91.25 days
Interpretation
The company takes approximately 91 days to collect payments, which is about 3 times longer than the 30-day credit terms. This indicates a need to improve collection processes or revise credit policies.
💡 Collection Tips
Lower collection period means faster cash conversion
Aim for collection period ≤ credit terms offered
Monitor trends monthly to spot issues early
Consider early payment discounts (e.g., 2/10 net 30)
Review customer creditworthiness regularly
📊 Industry Benchmarks
These are typical ranges. Your optimal collection period depends on your specific business model and credit policies.
🎯 Improvement Strategies
Understanding Average Collection Period
What is Average Collection Period?
The average collection period (ACP), also known as days' sales in accounts receivable, measures the average number of days it takes for a business to collect payment from customers after a credit sale.
Why It Matters
- •Cash Flow Management: Indicates how quickly you convert credit sales to cash
- •Credit Policy Effectiveness: Shows if your credit terms are working
- •Working Capital: Affects your available funds for operations
Collection Period Formula
ACP = (AR × Days) / Total Credit Sales
or
ACP = Days / Receivables Turnover Ratio
- ACP: Average Collection Period (in days)
- AR: Accounts Receivable (average amount owed)
- Days: Number of days in the period (usually 365)
- Total Credit Sales: Revenue from credit sales during the period
Pro Tip: Calculate average AR by adding opening and closing balances, then dividing by 2 for more accurate results.
Interpreting Your Results
Impact on Your Business
Lower Collection Period
- • Improved cash flow
- • Reduced bad debt risk
- • More working capital available
- • Lower financing costs
Higher Collection Period
- • Cash tied up longer
- • Increased bad debt risk
- • May need external financing
- • Potential operational constraints