What Is the Average Collection Period Ratio The average collection period ratio, often shortened to average collection period is also referred to as the ratio of days to sales outstanding. It is the average number of days it takes a company to collect its accounts receivable. In other words, this financial ratio is the average number of days required to convert receivables into cash. The mathematical formula to determine average collection ratio is simple but requires collecting some financial information first. This page describes how to calculate percentages in Excel in three. Return to the ExcelFunctions. Home. Definition of collection ratio The average time period for which receivables are outstanding. Equal to accounts receivable divided by average daily. Average Collection Period Ratio Calculation. The formula for calculating the average collection period ratio is Days in Period x Average Accounts Receivable Net Credit Sales Days to Collection. When using this average collection period ratio formula, the number of days can be a year 3. The average accounts receivable over the period can be determined by totaling the accounts receivable at the beginning of the period and the accounts receivable at the end of the period, then dividing by 2. Most businesses regularly account for the accounts receivable outstanding, sometimes weekly and often monthly. For longer calculation periods, the beginning and ending figures for accounts receivable can be found in the companys income statements or by adding the monthly accounts receivable figures for the year, which can be found on the balance sheet. Percent Calculations' title='Percent Calculations' />Gross Collection PercentageNet credit sales are simply the total of all credit sales minus total returns for the period in question. In most cases, this net credit sales figure is also available from the companys balance sheet. The result of the calculation is the average number of days between the time a credit sale is initiated until the credit balance is paid. A Working Example of the Calculation. For example, lets say that at the beginning of its 2. Ethics Book By Subbarao Pdf there. Company, Inc. had accounts receivable outstanding of 4. At the end of the same year, its accounts receivable outstanding equaled 5. Over the same period, its net credit sales gross sales minus returns totaled 6. Adding beginning accounts receivable of 4. Dividing by 2 equals 5. Multiplying the average accounts receivable 5. Dividing 1. 8,6. 15,0. The net change percentage is a common statistic displayed in stock quotes on financial websites and in newspapers. Lyrics Jonas Brothers Games here. This figure represents the difference between the. The net chargeoff is often a percentage. The net chargeoff rate is the. Find out what happens when your debt account is sold from one collection. Please confirm that you would like to log out of Medscape. Net Collection Rate. Calculation. Calculating Collection Float. Add Remove. The total collections are the sum of the percentage of each check amount. How To Calculate Collection PercentageThe Significance of the Average Collection Period Ratio. Knowing your companys average collection period ratio figure gives you more than one valuable insight into your business. Nevertheless, it should be interpreted with some caution. For one thing, to be meaningful the ratio needs to be interpreted comparatively. In comparison with previous years, is the businesss ability to collect its receivables increasing the days to collection figure is trending down or is it increasing If its the latter, it means your accounts receivable are losing liquidity and you may need to take positive steps to reverse this trend. You should also compare your companys credit policy with the average days from credit sale to balance collection to judge how well your firm is doing. If the average collection period, for example, is 4. But if the average collection period is 4. Tightening credit requirements. Making the credit terms clearer to your customers. Instituting a discount period after which time amounts outstanding are due at net, such 21. Instituting better follow up on delinquent accounts. Charging allowable interest on past due accounts.