1. What is Average Collection Period?

The Average Collection Period (ACP) measures how long it takes a business to collect payments from its customers. It's expressed in days and indicates the efficiency of a company's accounts receivable management.

2. How Does the Calculator Work?

The calculator uses the ACP formula:

Where:

• \( Accounts\ Receivable \) — Outstanding customer balances (USD)
• \( Credit\ Sales \) — Total sales made on credit (USD)
• \( 365 \) — Number of days in a year

Explanation: The formula shows the average number of days it takes to convert receivables into cash.

3. Importance of ACP Calculation

Details: A lower ACP indicates efficient collection processes, while a higher ACP may suggest credit policy issues or collection inefficiencies. It impacts cash flow and working capital management.

4. Using the Calculator

Tips: Enter accounts receivable and credit sales amounts in USD. Both values must be positive numbers for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What's a good average collection period?
A: It varies by industry, but generally 30-45 days is good for most businesses. Compare with industry averages for context.

Q2: How often should ACP be calculated?
A: Typically calculated monthly or quarterly to monitor trends in receivables management.

Q3: What if credit sales are zero?
A: The calculation becomes undefined. ACP only applies to businesses with credit sales.

Q4: How does ACP relate to DSO?
A: ACP and Days Sales Outstanding (DSO) are essentially the same metric, both measuring collection efficiency.

Q5: Can ACP be negative?
A: No, since both accounts receivable and credit sales are positive values, ACP should always be positive.