Financial Statement Analysis
 Ratio Analysis of Financial Statements (Formula, Types, Excel)
 Ratio Analysis Advantages
 Ratio Analysis
 Liquidity Ratios
 Cash Ratio
 Cash Ratio Formula
 Quick Ratio
 Quick Ratio Formula
 Current Ratio
 Current Ratio Formula
 Acid Test Ratio Formula
 Defensive Interval Ratio
 Working Capital Ratio
 Working Capital Formula
 Net Working Capital Formula
 Changes in Net Working Capital
 Cash Flow from Operations Ratio
 Cash Reserve Ratio
 Operating Cycle Formula
 Current Ratio vs Quick Ratio
 Bid Ask Spread
 Liquidity vs Solvency
 Liquidity
 Solvency
 Solvency Ratios
 Equity Ratio
 Capital Adequacy Ratio
 Liquidity Risk
 Altman Z Score
 Turnover Ratios
 Inventory Turnover Ratio
 Accounts Receivable Turnover
 Accounts Receivables Turnover Ratio
 Accounts Payable Turnover Ratio
 Days Inventory Outstanding
 Days in Inventory
 Days Sales Outstanding
 Average Collection Period
 Days Payable Outstanding
 Cash Conversion Cycle
 Cash Conversion Cycle (CCC) Formula
 Fixed Asset Turnover Ratio Formula
 Debtor Days Formula
 Working Capital Turnover Ratio
 Profitability Ratios
 Profitability Ratios Formula
 Common Size Income Statement
 Vertical Analysis of Income Statement
 Profit Margin
 Gross Profit Margin Formula
 Gross Profit Percentage
 Operating Profit Margin Formula
 EBIT Margin Formula
 Operating Income Formula
 Net Profit Margin Formula
 EBIDTA Margin
 Degree of Operating Leverage Formula (DOL)
 NOPAT Formula
 OIBDA
 Earnings Per Share
 Basic EPS
 Diluted EPS
 Basic EPS vs Diluted EPS
 Return on Equity (ROE)
 Return on Capital Employed (ROCE)
 Return on Invested Capital (ROIC)
 Return on Sales
 ROIC Formula (Return on Invested Capital)
 Return on Investment Formula (ROI)
 ROIC vs ROCE
 ROE vs ROA
 CFROI
 Cash on Cash Return
 Return on Total Assets (ROA)
 Return on Average Capital Employed
 Capital employed Employed
 Return on Average Assets (ROAA)
 Return on Average Equity (ROAE)
 Return on Assets Formula
 Return on Equity Formula
 DuPont Formula
 Net Interest Margin Formula
 Earnings Per Share Formula
 Diluted EPS Formula
 Contribution Margin Formula
 Unit Contribution Margin
 Revenue Per Employee Ratio
 Operating Leverage
 EBIT vs EBITDA
 EBITDAR
 Capital Gains Yield
 Tax Equivalent Yield
 LTM Revenue
 Operating Expense Ratio Formula
 Overhead Ratio Formula
 Variable Costing Formula
 Capitalization Rate
 Cap Rate Formula
 Comparative Income Statement
 Capacity Utilization Rate Formula
 Total Expense Ratio Formula
 Efficiency Ratios
 Dividend Ratios
 Debt Ratios
 Debt to Equity Ratio
 Debt Coverage Ratio
 Debt Ratio
 Debt to Asset Ratio Formula
 Coverage Ratio
 Coverage Ratio Formula
 Debt to Income Ratio Formula (DTI)
 Capital Gearing Ratio
 Capitalization Ratio
 Interest Coverage Ratio
 Times Interest Earned Ratio
 Debt Service Coverage Ratio (DSCR)
 DSCR Formula (Debt service coverage ratio)
 Financial Leverage Ratio
 Financial Leverage Formula
 Degree of Financial Leverage Formula
 Net Debt Formula
 Leverage Ratios
 Leverage Ratios Formula
 Operating Leverage vs Financial Leverage
 Current Yield
 Debt Yield Ratio
 Solvency Ratio Formula
 Average Collection Period Formula
 Average Collection Period Calculator
 Average Collection Period Excel Template
Average Collection Period Formula
As the name suggests, the collection period is the time between the credit sales are made and the cash is paid.
Here’s the formula for average collection period –
Alternatively, collection period can also be calculated as –
Recommended Courses
Average Collection Period Formula Example
Now we will take a practical example to illustrate the Average Collection period Calculation.
BIG Company decides to increase its credit term. The top management of the company requests the accountant to find out the collection period of the company in current scenario.
Here is the information available to the accountant –
 Net Credit Sales for the year – $150,000
 Accounts Receivables at the beginning of the year – $20,000
 Accounts Receivables at the end of the year – $30,000
 As an accountant, find out the collection period of BIG Company.
In this example, first, we need to calculate the average accounts receivable.
 The beginning and ending accounts receivables are $20,000 and $30,000 respectively.
 The average accounts receivables for the year would be = ($20,000 + $30,000) / 2 = $50,000 / 2 = $25,000.
Now, we will find out the accounts receivables turnover ratio.
 Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable
 Or, Accounts Receivable Turnover Ratio = $150,000 / $25,000 = 6.0x
Now, we can do the Average Collection period calculation
 Collection Period = 365 / Accounts Receivable Turnover Ratio
 Or, Collection Period= 365 / 6 = 61 days (approx.)
BIG Company now can change its credit term depending on its collection period.
Explanation of Average Collection Period Formula
The first formula is widely used by investors. The second formula is used when one doesn’t want to use the first formula.
4.8 (388 ratings)
In the first formula, we first need to find out the accounts receivable turnover ratio.
The formula for accounts receivable turnover ratio is –
Once we know the accounts receivable turnover ratio, we would be able to do the Average Collection period calculation. All we need to do is to divide 365 by the accounts receivable turnover ratio.
In the second formula, all we need to do is find out the average accounts receivable per day (meaning average accounts receivable divided by 365) and also the average credit sales per day (meaning average credit sales divided by 365).
Use of Collection Period
Since company needs to decide how much credit term it should provide, it needs to know its collection period.
For example, if a company has a collection period of 40 days, it should provide the term as 3035 days.
Knowing the collection period is very useful for any company.
There are two reasons for this –
 First, a huge percentage of company’s cash flow depends on the collection period.
 Second, knowing the collection period beforehand helps a company decide means to collect the money that is due on the market.
Collection period may differ from company to company. A company may sell seasonally. In that case, the formula for average collection period should be adjusted as per the necessity.
If for seasonal revenue, the company decides to the Average Collection period calculation for the whole year, it wouldn’t be just.
Average Collection Period Calculator
You can use the following Average Collection Period Calculator
365 Days  
Accounts Receivable Turnover Ratio  
Average Collection Period Formula =  
Average Collection Period Formula = 


Average Collection Period Calculation in Excel (with excel Template)
Let us now do the same Average Collection period calculation example above in Excel.
This is very simple. You need to calculate the average accounts receivable, find out the accounts receivables turnover ratio. And then find the collection period.
First, we need to calculate the average accounts receivable
Now, we will find out the accounts receivables turnover ratio.
Now, we can calculate the collection period.
You can download this Average Collection Period Excel template here – Average Collection Period Excel Template
Average Collection Period Video
Recommended Articles
This has been a guide to Average Collection period formula, its uses, examples and average collection period calculator along with excel templates. You may also have a look at these articles below for further readings
Leave a Reply