Average Collection Period Calculator
The Average Collection Period Calculator tells you how many days, on average, it takes your business to collect cash from customers after a credit sale. Enter your average accounts receivable and your net credit sales for the period, and you get the collection period in days plus the matching receivables turnover ratio. A shorter period means you convert sales into cash faster.
Formula
Average Collection Period = (Average Accounts Receivable ÷ Net Credit Sales) × Days in Period
- The average collection period (also called Days Sales Outstanding, DSO) measures how long it takes to turn credit sales into cash.
- Formula: Average Collection Period = (Average Accounts Receivable ÷ Net Credit Sales) × Days in Period.
- Receivables Turnover = Net Credit Sales ÷ Average Accounts Receivable, and the collection period equals Days ÷ Turnover.
- Input definitions: • Average accounts receivable: typically (opening + closing receivables) ÷ 2 for the period. • Net credit sales: sales made on credit, excluding cash sales and returns. • Days in period: 365 for a year, 90 for a quarter, 30 for a month.
- Use only credit sales, not total sales. Including cash sales understates the true collection period.
- A lower number is generally better — it means faster cash collection and less money tied up in receivables.
- Compare your result with your payment terms (e.g. net 30). A collection period well above your terms signals slow-paying customers.
Example Calculation
Inputs
- Average accounts receivable: 50000 Rs
- Net credit sales (for the period): 365000 Rs
- Days in period: 365 days
With average receivables of Rs 50,000, net credit sales of Rs 365,000, and a 365-day year, the collection period = (50,000 ÷ 365,000) × 365 ≈ 50 days, and receivables turnover = 365,000 ÷ 50,000 = 7.3×. On average, customers take about 50 days to pay.
Frequently asked questions
What is the average collection period?
It is the average number of days your business takes to collect payment after making a credit sale. It is also known as Days Sales Outstanding (DSO).
Is a high or low collection period better?
A lower collection period is usually better. It means you collect cash quickly and have less capital locked up in unpaid invoices.
What counts as net credit sales?
Net credit sales are sales made on credit (not cash), minus any returns, allowances, or discounts. Cash sales are excluded because there is nothing to collect.
How do I find average accounts receivable?
Add the receivables at the start and end of the period and divide by two: (opening + closing) ÷ 2.
How does this relate to receivables turnover?
They are two views of the same thing. Turnover = sales ÷ receivables, and the collection period = days in period ÷ turnover.
What is a good collection period?
It depends on your industry and payment terms. Compare it to your stated terms — if you offer net 30 but collect in 55 days, customers are paying late.