COLLECTION PERIOD (Period Average) Definition

Bookmark and Share

 

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)

Learn new Accounting Terms

MARKETABILITY is the ability to quickly convert assets to cash at minimal cost.

WHOLLY OWNED SUBSIDIARY is an entity whose parent owns virtually 100% of its common stock.

Suggest a Term

Enter Search Term

Enter a term, then click the entry you would like to view.