The average collection period is the number of days a business waits, on average, to collect payment from credit customers. This calculator uses average receivables. It also compares the result with your payment terms to show how many days payments run late.
The formula
Average AR = (beginning AR + ending AR) / 2
Average collection period = average AR / net credit sales x days in period
Days beyond terms = average collection period - payment terms (minimum 0)
If net credit sales are zero, the result is zero.
Worked example
A company reviews one year:
- Net credit sales: $300,000
- Beginning AR: $45,000
- Ending AR: $55,000
- Period: 365 days
- Payment terms: 30 days
Average receivables: $50,000
Average collection period: $50,000 / $300,000 x 365 = 60.83 days
Days beyond terms: 60.83 - 30 = 30.83 days
Customers take about twice as long to pay as the terms allow.
How to read the result
The gap to your terms is the most useful number. A large gap points to late payment habits, unclear invoices or weak follow-up. Start with the customers who owe the most.
Pitfalls to avoid:
- Mixed periods. Use sales and receivables from the same period.
- Cash sales. Leave them out. They never become receivables.
- Seasonal peaks. Two balances may not show the busiest weeks. Use shorter periods if sales swing.
- Mixed terms. If customers have different terms, the single terms value is an approximation.
The result is the inverse view of turnover. See the AR turnover calculator for the same data as a ratio. Rules for reporting differ by country, so confirm your method with an accountant.
Related tools
- DSO calculator
- AR aging calculator to see which invoices cause the delay
- Account statement generator
- Guide: Accounts receivable basics
- Guide: Collecting unpaid invoices
Frequently asked questions
- What is the average collection period?
- It is the average number of days between a credit sale and the payment. It shows how long your money stays tied up in receivables. A shorter period means faster cash.
- How do you calculate the average collection period?
- Divide average receivables by net credit sales and multiply by the days in the period. Average receivables equal beginning AR plus ending AR, divided by two. With $50,000 average AR, $300,000 sales and 365 days, the result is 60.83 days.
- What is the difference between average collection period and DSO?
- They measure the same idea. DSO often uses ending receivables. This calculator uses average receivables, which smooths changes inside the period. Choose one method and keep it the same.
- What does days beyond terms mean?
- It is the average collection period minus your payment terms, never below zero. If your terms are 30 days and the period is 60.83 days, customers pay about 30.83 days late on average.
- What is a good average collection period?
- A good result is close to your payment terms. Many businesses accept a gap of several days. The right level depends on your industry and customers, so track your own trend over time.