The Average Collection Period ratio shows how quickly the proceeds from Sales(i.e. Accounts Receivable (A/R) ) are converted into Cash. It is the average number of days to receive payment, this is shown on the Visual Finance graphic.
Average Collection Period = Accounts Receivable (A/R) /Average Daily Sales
where Average Daily Sales = Sales/365
Example: The Round Number CompanySales = 200; Accounts Receivable (A/R) = 40 Average Daily Sales = 200/365 = 0.55 Average Collection Period = 40/0.55 = 73 Days |
Average Collection Period is part of the Cash Conversion Cycle.
Also called Days Sales Outstanding (DSO) or Days Sales in Receivables (DSR) or Days Receivables.
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Calculator for Average Collection Period Average Daily Sales = Sales/365
Average Collection Period = Accounts Receivable (A/R) /Average Daily Sales
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term list.