A short collection period means cash comes in quickly. If it is much longer than your credit terms (for example 30 days), customers are paying late and your working capital is tied up in receivables.
How to use the Average Collection Period Calculator
- Average accounts receivable
- Annual credit sales
- Days in the year
- Credit terms
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter average accounts receivable, annual credit sales and the credit terms you offer.
Inputs explained
| Field | What to enter |
|---|---|
| Average accounts receivable | Amount in your currency |
| Annual credit sales | Amount in your currency |
| Days in the year | A number |
| Credit terms | In days |
What each result means
- Average collection period = [Average accounts receivable]÷[Annual credit sales]×[Days in the year]
- Receivables turnover = [Annual credit sales]÷[Average accounts receivable]
Example values
How the main result changes when Average accounts receivable changes and everything else stays at the example values above:
| Average accounts receivable | Average collection period (days) |
|---|---|
| 25,000 | 18.3 |
| 37,500 | 27.4 |
| 50,000 | 36.5 |
| 62,500 | 45.6 |
| 75,000 | 54.8 |
| 100,000 | 73 |
Formula
Average collection period = average accounts receivable ÷ credit sales × 365
or = 365 ÷ receivables turnover
Worked example
Inputs: Average accounts receivable: $50,000; Annual credit sales: $500,000; Days in the year: 365; Credit terms: 30 days.
Results: Average collection period = 36.5 days; Receivables turnover = 10 ×; Compared with your terms = Somewhat slow.
Frequently asked questions
What does the average collection period tell me?
How quickly customers pay. The lower, the better for cash flow.
Is it the same as DSO?
Yes, days sales outstanding is calculated the same way.
How do I shorten it?
Tighter credit checks, early-payment discounts and prompt reminders.