accounting Accounting, also known as accountancy, is the process of recording and processing information about economic entity, economic entities, such as businesses and corporations. Accounting measures the results of an organization's economic activit ...

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 Loan, borrowed or otherwise withheld from another party, the creditor. Debt may be owed by a sovereign state or country, local government, company, or an individual. Co ...

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) The average collection period (ACP) is the time taken by businesses to convert their

accounts receivable Accounts receivable, abbreviated as AR or A/R, are legally enforceable claims for payment held by a business for goods supplied or services rendered that customers have ordered but not paid for. The accounts receivable process involves customer on ...

(AR) to cash. 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.

References

Financial ratios Working capital management {{Finance-stub

See also

References