Average Collection Period Calculator

How to Use This Calculator

1. Enter the Average Accounts Receivable in the first input field. This is the average amount of money owed by your customers over a period.
2. Enter the Annual Credit Sales in the second input field. This is the total sales made on credit during the year.
3. Click the Calculate button to compute the Average Collection Period.
4. The result will be displayed in days, showing how many days it takes on average for your company to collect payment after a sale.

Understanding the Average Collection Period

The Average Collection Period (ACP) is a financial ratio that indicates the average number of days it takes for a company to collect payment after a sale has been made on credit. A shorter ACP is generally better as it means the company collects its money faster, improving cash flow.

Example

Suppose a company has an average accounts receivable of $50,000 and annual credit sales of $500,000. The ACP would be calculated as:

($50,000 × 365) / $500,000 = 36.5 days

This means it takes the company approximately 36.5 days to collect payment from its customers on average.

Interpretation Tips

• Compare to industry standards - ACP can vary by industry. Compare your ACP to industry averages to understand your company's performance.
• Track over time - Monitor your ACP regularly to identify trends. An increasing ACP may indicate collection problems.
• Consider credit policies - If your ACP is higher than desired, consider tightening your credit policies or improving collection efforts.