1. What is the Average Collection Period?

The Average Collection Period (ACP) measures the average number of days it takes a business 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 formula:

Where:

• \( Receivables\ Turnover \) — Net credit sales divided by average accounts receivable
• \( 365 \) — Number of days in a year (some businesses use 360)

Explanation: The formula converts the receivables turnover ratio into days, showing how quickly a company collects its accounts receivable.

3. Importance of ACP Calculation

Details: ACP helps businesses evaluate their credit policies, assess cash flow efficiency, and compare performance against industry standards. A lower ACP generally indicates better cash flow management.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What is a good Average Collection Period?
A: This varies by industry, but generally a lower ACP is better. Compare with industry averages and your credit terms (e.g., if you offer net-30 terms, ACP should be close to 30 days).

Q2: How is Receivables Turnover calculated?
A: Receivables Turnover = Net Credit Sales / Average Accounts Receivable. You need this value to use this calculator.

Q3: Why use 365 days?
A: Some businesses use 360 days for simplicity, but 365 is more accurate. You can adjust the formula if needed.

Q4: What if my ACP is too high?
A: A high ACP may indicate collection problems. Consider tightening credit policies, offering early payment discounts, or improving collection procedures.

Q5: Can ACP be compared across industries?
A: Not directly, as payment terms vary by industry. Compare only with companies in the same industry.