Accounts Receivable Collection Period Calculator
**This is a basic calculator and does not accept commas. When entering values, just enter the numbers.
**This calculator assumes 365 days in a year.
Accounts Receivable Collection Period Formula
Accounts Receivable Collection Period =
Average Accounts Receivable / (Annual Credit Sales / 365)
Average Accounts Receivable / (Annual Credit Sales / 365)
Accounts Receivable is calculated by the following:
Average Accounts Receivable =
(Beginning Accounts Receivable + Ending Accounts Receivable)/2
The beginning of the period could be Jan 1 and the end period could be Dec 31, then divided by two.
(Beginning Accounts Receivable + Ending Accounts Receivable)/2
What is Accounts Receivable Collection Period?
The Accounts Receivable Collection Period is an accounting measure to evaluate receivables (payments still not collected) compared with total sales. It is similar to Days Sales Outstanding. This ratio measures how long it takes customers to pay their debts to the business. The lower this value is, the better. It means that the business is receiving its payments in a timely manner which has many other implications; ie. better cash flows and less likelihood of customers defaulting.
As with most accounting ratios, this measure should be compared with similar companies in the same industry, as each industry has its own "norms." Additionally, this metric is used to evaluate how customers are paying in comparison with terms (payment policy) established by the business. If this measure is exceeding the terms, then more effort may be necessary to enforce payment.
Accounts Receivable Collection Period Example
Shoeburger Corp, a small business that sells burgers to local fast food restaurants, had a beginning accounts receivable balance of $200,000 on January 1 and an ending receivables balance of $240,000 on December 31. The company had annual credit sales of $4,200,000 for the year. To solve this, we do the following:
First calculate Average Receivables:
($200,000 + $240,000)/2 = $220,000
Next take Net Credit Sales and divide by 365 days:
$4,200,000/365 = 11,506.85 (we will round to 11,507)
Finally, take average receivables and divide by the results from the previous step:
$220,000/11,507 = 19.12 days
This means Shoeburger customers pay their obligation to Shoeburger Corp on average of 19 days, or put another way, Shoeburger Corps accounts receivable collection period is 19.12 days.