Calculator © - Free Online Calculators

Online Calculators since 2009

# Average Collection Period Calculator

The Average Collection Period Calculator (ACP Calculator) allows you to calculate the number of days between the date that a credit sale was made and the date the money was received/collected from the customer. The computed number of days is defined as the receivables turnover ratio which, when expressed as a factor of the number of days in a year provides the average collection period. To calculate the average collection period, simply enter the number of collections made within a twelve month period.

 Number of collections within a year:
 Average Collection Period
[ No Votes ]

## Established or a Startup, Every Business Needs a Good Average Collection Period

Running a business smoothly is hard enough in today`s world, but for every business owner it is essential to have an appetite to do business on credit with its regular clients. This is where calculating and understanding the average collection period becomes important for each and every business, no matter what kind of business you run. If you try to run your business only on cash, the chances are you will wind up getting stuck in average fixed profits.

Every business wants to make profits with the company's full potential and average collection period calculator helps you figure out the numbers you require to do so.

## What is an average collection period?

To put it into layman's terms, the average collection period is the amount of time a business takes to receive the funds from its customers after making the actual sale, however it is not as simple as that.

The average collection period (ACP) is the basis of a company's total profitability, for example, if a company has an ACP of 90 days and the company pays its debts in 30 days then the company is running a risk of not getting its essential supplies for a period of 60 days. If the company has paid its debt but not received the credits it might not be able to pay for the supplies, and every business should prevent this kind of situation.

## Receivable turnover ratio explained

This term is used to define a company's effectiveness in collecting the money owed by its clients, whereas a high receivable turnover ratio indicates that the company is effectively cashing its receivables regularly, which also means a good clientele, while a low receivable turnover rations shows company's poor collection rate and policies, and/or less creditworthy customers.

Low receivable turnover ratio is also an indicator that the company is in urgent need of improving its collection policies and needs to re-evaluate its customer base.

## Every industry has a different kind of average collection period

We all work in different kinds of industries and every industry has different financial needs. Some rely on more cash flow whereas some can run more on credits. However, success in every industry depends on the understanding of good accounting practices, the ability to calculate, comprehend and control the average collection period is key for a successful business sustainability and growth strategy.

You could be a financial institution or may be a cafĂ© owner, but we all, at some point of time have to start offering a decent amount of credit tabs to our regular/ loyal or let's say potential strong customers, in that sense, this calculator can be quite handy to measure your credit capacity.

## Why use average collection period calculator?

When you use the average collection period calculator it not only saves you time but also lets you do your calculations in the comfort of your own office. With a simple click you can get an overall idea about the payment trends. Using an online calculator to calculate Average Collection Period is also useful for the following reasons.

1. A huge percentage of a company's cash flow depends on the average collection period.
2. When you calculate the average collection period proactively, it helps your company decide the means to collect the money that's due in the market.
3. You can measure and compare the trends with past years and improve average collection periods.
4. Compare your company with its competitors as similar companies should have similar average collection period.

When it comes to growing your business further it's quite beneficial as it helps measure and improve average collection period, which means more cash flow. Online calculators are easy to operate and also the results can be sent to your email so you can check them whenever you need to complete periodic business reviews, prepare for a meeting or discuss with your peers.

## What does the increase in average collection period indicate?

An increase in ACP can be due to following reasons:

1. Bad credit policy - It means that the company has decided to let buyers take more products on credit or they are allowed a longer period of time to pay off their outstanding money to the company.
2. Worsening economy - This could be the result of general economic conditions; it may also affect the profitability of other companies which can drive them to delay the payments to its suppliers.
3. Poor Business Process - This could happen because of a lack of efforts of company's collection team, insufficient business / accounting knowledge or suggest an overall training / skills shortfall.

## In Summary

Any company facing decrease in average collection period should take appropriate actions to resolve with a view to increasing orders to become more profitable.

All in all, the average collection period calculator is a really good tool to help your business grow as it helps you with your company's finances and is made in a way that's simple for anyone to use.