Average Collection Period

Average (or ‘Debtor’) Collection Period (ACP) is the average time taken to collect trade debts (your accounts receivable). In other words, it shows how many days your credit sales remain on average in your A/R before they are collected. And thus allows to compare the real collection period with the granted/theoretical credit period.

For example, your company may find that its average collection period is actually 45 days or more, although its granted period is 30 days. Monitoring the average collection period is important for a company's cash flow and its ability to meet its obligations when they come due.

ACP is calculated by dividing 365 (the number of days in a year) by your Receivables Turnover

Possessing a lower average collection period is seen as optimal, because this means that it does not take a company very long to turn its receivables into cash. However, it is usually preferable to (1) come up with optimal granted period for each category of your clients and (2) make sure that real collection period always matches the declared one.