Average Collection Period

The Average Collection Period measures the time it takes for a bussiness to receive payments owned. It has proven to be a valuable resourse when determining the strength of a company.

ACP = (Days)*(Average Accounts Recieveable) / (Credit Sales)

So if a company made 1 million dollars in sales last year and 600,000 in accounts recieveable during the same period the equation would look like this ACP= (365)*(600,000)/(1,000,000). That would give them an average collection period of 219 days.

This means it takes the company an average of 219 days to collect on their sales. The lower this number is the better. Companies need to not only make sales but they need to collect the money from the sales in order to pay expenses and grow.