1. What is the ACP (Average Collection Period)?

The ACP (Average Collection Period) measures the average number of days it takes a company to collect payments from its customers. It's a key metric for assessing accounts receivable efficiency and cash flow management.

2. How Does the Calculator Work?

The calculator uses the ACP equation:

Where:

• \( Receivables\ Turnover \) — Net credit sales divided by average accounts receivable
• \( 365 \) — Number of days in a year

Explanation: The equation converts the receivables turnover ratio (which shows how many times receivables are collected per year) into the average number of days to collect payment.

3. Importance of ACP Calculation

Details: ACP helps businesses evaluate their credit and collection policies. A lower ACP indicates more efficient collection of receivables, while a higher ACP may signal collection problems or overly lenient credit terms.

4. Using the Calculator

Tips: Enter the receivables turnover ratio (unitless value). The value must be greater than 0. The calculator will output the average collection period in days.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ACP value?
A: Ideal ACP varies by industry. Generally, it should be close to or less than the company's credit terms (e.g., if terms are net 30, ACP should be ≤30 days).

Q2: How does ACP differ from DSO?
A: ACP and DSO (Days Sales Outstanding) are similar metrics, both measuring collection efficiency. ACP typically uses annual data, while DSO may use monthly data.

Q3: What causes high ACP?
A: High ACP may result from poor collection processes, lenient credit policies, or customers with cash flow problems.

Q4: Can ACP be too low?
A: Extremely low ACP might indicate overly strict credit policies that could limit sales growth.

Q5: How often should ACP be calculated?
A: Most businesses monitor ACP monthly or quarterly to track trends in receivables management.