In accounting, the term Debtor Collection Period shows the average time taken to collect trade debt. In other words, the time reduction period is an indicator of efficiency improvement. This allows the company to compare the real collection period with the given/theoretical credit period.
Debtor Collection Period = (Average Debtor/Credit Sales) x 365 (= Number of Days) (average debtors = debtors at the beginning of the debtor year at end of year, divided by 2 or Debtor Receivables)
Credit Sales are all sales made with credit (ie not including cash sales) Long debtor collection period is an indication of slow or late payment by the debtor.
The multiplier can be changed to 12 (for months) or 52 (for weeks) if appropriate.
Video Debtor collection period
See also
- Cash flow
- Working capital
Maps Debtor collection period
References
Source of the article : Wikipedia
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