What Is Average Collection Period Ratio Formula and How to Calculate It

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Formula for Average Collection Period

How to Calculate Average Collection Period?

  1. 🔎 Another average collection period interpretation is days’ sales in accounts receivable or the average collection period ratio.
  2. The receivables turnover can use the total accounts receivable at the end of a period or the average throughout the period.
  3. Most modern businesses use accrual accounting, offering their customers the option to buy now and pay later.
  4. First and foremost, establishing your business’s average collection period gives you insight into the liquidity of your accounts receivable assets.
  5. Otherwise, if you allow clients to regularly take too long to pay invoices, your business may not have the cash on hand to operate how you’d like and meet financial obligations.