Glossary · Receivables metrics
Average collection period
The average collection period is how many days, on average, it takes a business to collect payment after a credit sale.
The average collection period expresses receivables in days of sales. It is the same idea as days sales outstanding (DSO); textbooks usually calculate it over a year using the average receivables balance, while DSO is often calculated for a shorter period from the closing balance.
It can also be derived from the accounts receivable turnover ratio: 365 divided by the turnover gives the average number of days to collect.
Compare the result with your payment terms. A firm on 30-day terms with a 45-day collection period has customers paying, on average, about two weeks late.
Formula
Average collection period = (average accounts receivable ÷ net credit sales) × 365
Example
A firm starts the year with €50,000 of receivables and ends with €70,000, so the average is €60,000. Credit sales for the year are €730,000. Average collection period = 60,000 ÷ 730,000 × 365 = 30 days.