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Average collection period is calculated by dividing a company's average accounts receivable balance by its net credit sales for a specific period, then...
The average collection period is the time a business takes to convert its trade receivables (debtors) to cash. The formula for calculating the average collection period is 365 (days) divided by the accounts receivable turnover ratio or average accounts receivable per day divided by average credit sales per day.
The average collection period is calculated by dividing a company’s yearly accounts receivable balance by its yearly total net sales; this number is then multiplied by 365 to generate a number in days.
The average collection period formula is the number of days in a period divided by the receivables turnover ratio. The numerator of the average collection period formula shown at the top of the page is 365 days.
Here's the average collection period formula: ACP = AR × Days / TCS; where: ACP — Average collection period; AR — Accounts receivable; and; TCS — Total credit sales. Multiply the average accounts receivable with the respective number of days, for which you're calculating the average.
To calculate the average collection period, divide the average AR balance by total net credit sales and multiply by the number of days in the specific period. This formula offers a clear picture of how well a company manages its accounts receivable.
The average collection period is calculated by dividing the net credit sales by the average accounts receivable, which gives the Accounts receivable turnover ratio. To determine the average collection period, divide 365 days by the accounts receivable turnover ratio.
The days sales outstanding calculation, also called the average collection period or days’ sales in receivables, measures the number of days it takes a company to collect cash from its credit sales. This calculation shows the liquidity and efficiency of a company’s collections department.
The average collection period is determined by taking the net credit sales for a given period and dividing the average accounts receivable balance by the company's net credit sales. The quotient is then multiplied by 365 days.
The average collection period ratio can help you determine what your business can realistically expect from customers. To calculate it, divide your net sales by your accounts receivables. Then, multiply that quotient by the number of days in a year.