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Average collection period computed as follows:
Average collection period = (365 days*Average Receivables) / Credit Sales
or
Average collection period =365 days / Receivable Turnover
Average receivable period = ( Avg receivable / credit sales ) *365.
The average collection period is also referred to as the days' sales in accounts receivable thus how long it will take to receive the amount due to debtors. It can be computed by this formula
Or accounts receivable balance Annual sales ÷365 days
Here is an example. Imagine a firm with accounts receivable on its balance sheet of $8,960 for2008. Credit sales, from the income statement, were $215,600 for2008. Here's the formula:
ACP=$8,960/$215,600/365 =15 days
This means that, on average, customers pay their credit accounts every15 days
Professional Formula
((Opening Balance + Closing Balance)/2) / Total Credit Sales x (No. Of Days)
The formula is:
Average Accounts Receivable
= _______________________
Sales /365 days
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