Formula
to calculate (average) collection period:
Collection
Period = Accounts Receivable X 365 days
Credit Sales
Collection Period
=
365 days
Accounts Receivable Turnover Ratio
The
average collection period calculation uses the average
accounts receivable over the sales period.
(Average)
Collection Period definition and explanation:
The collection
period or average collection period must be compared to
competitors to see whether the credit given, and
customer risk, is in line with the industry.
A high collection
period shows a high cost in extending credit to
customers.
See
Accounts Receivable Turnover formula
The collection period is included in the financial
statement ratio analysis spreadsheets highlighted in the
left column, which provide formulas, definitions,
calculation, charts and explanations of each ratio.
The average collection period is listed in our efficiency
ratios.
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Spreadsheets to
calculate ratios (includes formulas, definitions,
explanations and charts):
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analysis spreadsheets which are not highlighted in the
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define, calculate and explain.
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period is included in our
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