The Average Collection Period measures the average number of days it takes for a company to collect payments from its clients after issuing an invoice.
This metric helps companies assess the efficiency of their accounts receivable process and cash flow management. A shorter collection period indicates that the company is collecting payments quickly, while a longer period means there are challenges with delayed payments or poor credit management - probably leading
to cash flow problems. A defined invoicing process, collection process, and good client management is helpful to improve this metric. A good goal is to aim for under 30 days.
Average Collection Period = Account Receivable Balance / Total Net Sales x 365
So Average Collection Time indicates how long it takes you to get paid.
Companies that offer electronic payment options get paid faster. Data shows that architecture firms offering e-Payments on their invoices experience a 12.3% reduction in average collection time. That means improved cash flow, fewer delays, less time spent chasing unpaid invoices, and streamlined operations.