Average collection period意思

"Average collection period" is a financial metric used to measure the average number of days it takes for a company to collect payments from its customers after issuing an invoice. It is calculated by dividing the total accounts receivable by the average daily sales and is expressed in days.

The formula for calculating the average collection period is:

Average Collection Period = Total Accounts Receivable / Average Daily Sales

The average collection period provides insights into a company's efficiency in managing its receivables and the speed at which it converts sales into cash. A shorter average collection period is generally considered better because it indicates that the company is collecting its receivables quickly, which can help improve cash flow and reduce the risk of bad debts.

For example, if a company has $100,000 in accounts receivable and its average daily sales are $5,000, its average collection period would be:

Average Collection Period = $100,000 / $5,000 = 20 days

This means that, on average, it takes the company 20 days to collect payment from its customers after making a sale.