Accounts receivable collection period

Accounts receivable collection period = Trade receivables/Credit sales revenue*365 days

Please note the trade receivables used may be a year-end figure or the average for the year. An increasing accounts receivable collection period is usually a bad sign as it suggests lack of credit control.

It may be due to a leliberate policy extend the stated credit period to attact more trade. A falling collection period is usually a good sign, but it can be distorted by:

1. The year-end figures don’t represent the average level for the period.
2. Some reasons of accounts receivable.
3. Sales on ususually long credit terms to some customers.

You should make the right conclusion according to the specific.

Related posts:

1. Receivables collection period
2. Accounts payable payment period
3. Balance sheet accounts receivable
4. Accruals concept
5. The general journal and general ledger accounts