COLLECTION PERIOD (Period Average) Definition

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COLLECTION PERIOD (Period Average) is used to appraise accounts receivable (AR). This ratio measures the length of time it takes to convert your average sales into cash. This measurement defines the relationship between accounts receivable and cash flow. A longer average collection period requires a higher investment in accounts receivable. A higher investment in accounts receivable means less cash is available to cover cash outflows, such as paying bills. NOTE: Comparing the two COLLECTION PERIOD ratios (Period Average and Period End) suggests the direction in which AR collections are moving, thereby giving an indication as to potential impacts to cash flow. Formula: ((AR (current) + AR (period ago)/2) / (Net Revenue / 365)

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ADA, among others, is Americans with Disabilities Act of 1990.

SELLING & ADMINISTRATIVE EXPENSE BUDGET is a budget of planned expenditures for non-manufacturing activities, such as sales commissions and office salaries. See OPERATING BUDGET.

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