In one sentenceThe average number of days between a credit sale and collecting its value from the customer, calculated by dividing receivables by credit sales and multiplying by 365.
Simply put
Every day the money stays with the customer is a day you cannot use it. This measure turns the receivables balance into a number of days that is easy to understand and to compare with the payment terms you give your customers.
If your terms are 30 days and the average is 60 days, your customers are paying late, and it is worth reviewing the receivables aging and credit limits.
Worked example
A distribution business made credit sales of 1,825,000 SAR in the year, and its receivables balance at year end is 300,000 SAR.
Daily credit sales = 1,825,000 ÷ 3655,000 SAR
Receivables300,000 SAR
Collection period = 300,000 ÷ 5,00060 days
Formula: Receivables ÷ credit sales × 365
Don't confuse it with
Days payable outstandingThe collection period is how long you wait for customers' money, and the payment period is how long suppliers wait for yours.
in FullScreen ERP
Cash and credit sales with a credit limit for each customer and an alert when it is exceeded. Sales and POS