Average collection period

Alternatively, it is good practice to have a low average collection period, as given by... 

An accounts-receivable-turnover ratio of 12 is considered fairly good for a manufacturing company This implies an average collection period of about 1 month. The price obtained for the goods should include an allowance for interest (otherwise obtainable) on the money tied up for such a period. 

Activity ratios are a measure of how effectively a firm manages its assets. There are two inventory/turnover ratios in common use today. The inventory/sales ratio is found by dividing the inventory by the sales. Another method is to divide the cost of sales by inventory. The average collection period measures the number of days that customers invoices remain unpaid. Fixed assets and total assets turnover indicate how well the fixed and total assets of the firm are being used. 

Average collection period Receivables/sales per day 40-60 days... 

Average collection period Net accounts receivable end of year Accounts receivable Average daily accounts receivables... 

Table 9.16 Average Collection Period for Accounts Receivables...

Average collection period receivables/saies per day 45-60 days... 

The activity ratios are average for a chemical company, and it appears the company manages its assets effectively. One area that bears watching is the average collection period, lest it increase. 

Average collection period accounts receivable/daily credit sales... 

Days sales outstanding (DSO), also called average collection period, is another ratio that evaluates receivables. It represents the number of days it takes to collect cash from receivables. DSO can be more intuitive to understand than the A/R turnover ratio. 

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