What is the Average Collection Period?
Average collection period is a liquidity ratio that describes how long it takes a company to collect their accounts receivables (an asset account on the balance sheet).
How to Calculate the Average Collection Period
The average collection period is calculated by dividing 365 days by accounts receivable turnover.
How to Interpret the Average Collection Period
Investors should look for a short average collection period. It means the company is efficient at collecting cash that it is owed. This is desirable, since the company is then more liquid and can use the cash if the need arises.