This glossary uses Visual Finance™ to bring financial terms to life. Each example shows data from the Round Number Company, a fictional business with simplified figures to make learning easier. For more details, visit 'How to Read Visual Finance'.
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 |
The above is our generic explanations of common corporate financial terminology. Actual meanings can vary widely from company to company; in order to have the correct internal definition you need to ask your Finance Department, "What do you mean by that?"
term list.