In
accounting the term Debtor Collection Period indicates the average time taken to collect trade
debt
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...
s. In other words, a reducing period of time is an indicator of increasing efficiency. It enables the enterprise to compare the real collection period with the granted/theoretical credit period.
: Debtor Collection Period = ×
: (average debtors = debtors at the beginning of the year + debtors at the end of the year, divided by 2 or Debtors + Bills Receivables)
Credit Sales are all sales made on credit (i.e. excluding cash sales) A long debtors collection period is an indication of slow or late payments by debtors.
The multiplier may be changed to 12 (for months) or 52 (for weeks) if appropriate.
See also
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Receivables turnover ratio
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Cash flow
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Debtor days
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Working capital
Working capital (WC) is a financial metric which represents operating liquidity available to a business, organisation, or other entity, including governmental entities. Along with fixed assets such as plant and equipment, working capital is consi ...
References
Financial ratios
Working capital management
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