Average Collection Period
What is an Average Collection Period?
The average collection period is the average time it takes for customers to pay what they owe.
![acp 1](https://seeaccountingnow.online/wp-content/uploads/2021/08/acp-1.jpg)
How it Works
A business will sell goods and services on credit.
![acp 2](https://seeaccountingnow.online/wp-content/uploads/2021/08/acp-2.jpg)
The business will record the debt owed for this in accounts receivable.
![acp 3](https://seeaccountingnow.online/wp-content/uploads/2021/08/acp-3.jpg)
By doing this, the business is allowing customers time to pay.
![acp 4](https://seeaccountingnow.online/wp-content/uploads/2021/08/acp-4.jpg)
Some customers will pay on time.
![acp 5](https://seeaccountingnow.online/wp-content/uploads/2021/08/acp-5.jpg)
Others will take longer.
![acp 6](https://seeaccountingnow.online/wp-content/uploads/2021/08/acp-6.jpg)
The sooner all customers pay, the better.
![acp 7](https://seeaccountingnow.online/wp-content/uploads/2021/08/acp-7.jpg)
This means the business will have enough money available to meet their financial obligations.
![acp 8](https://seeaccountingnow.online/wp-content/uploads/2021/08/acp-8.jpg)
Calculating Average Collection Period
To keep an eye on the situation, management and analysts monitor the average collection period, closely.
![acp 9](https://seeaccountingnow.online/wp-content/uploads/2021/08/acp-9.jpg)
Average collection period is the average time it takes to collect customer payments during the period.
![acp 10](https://seeaccountingnow.online/wp-content/uploads/2021/08/acp-10.jpg)
One way to calculate this is to divide average accounts receivable by daily credit sales.
![acp 11](https://seeaccountingnow.online/wp-content/uploads/2021/08/acp-11.jpg)
Begin by calculating average accounts receivable.
![acp 12](https://seeaccountingnow.online/wp-content/uploads/2021/08/acp-12.jpg)
Add beginning accounts receivable to ending and divide by 2.
![acp 13](https://seeaccountingnow.online/wp-content/uploads/2021/08/acp-13.jpg)
Next, find average daily credit sales for the period.
![acp 14](https://seeaccountingnow.online/wp-content/uploads/2021/08/acp-14.jpg)
Here, divide total credit sales by 365.
![acp 15](https://seeaccountingnow.online/wp-content/uploads/2021/08/acp-15.jpg)
Now calculate the average collection period.
![acp 16](https://seeaccountingnow.online/wp-content/uploads/2021/08/acp-16.jpg)
© R.J. Hickman 2020