Average Collection Period
If you are wondering why your business is always short on cash, you might take a look at your average collection period. This is the average number of days between the date that you make a sale on credit and the date you actually get the money in your hands.
The lower the average the better, although you might be annoying your customers if you offer less than 30 days’ payment terms. So it’s always a good idea to compare your average with that of the competition.
One way to calculate your average collection period is to take the average accounts receivable balance for a year and divide that by your credit sales per year. To get the average accounts receivable balance take the AR number at the beginning of the year, add the AR balance at the end of the year and divide by 2. So if your balance is $40,000 at the beginning of the year and $20,000 at the end of the year, add them together and divide by 2 to get $30,000. Then divide that by your total net sales of $300,000 per year and multiply by 365 days to the average collection period of 36.5 days. Not too bad.
Some companies offer a 1%-2% discount for paying on time, while others get on the phone and make friendly collection calls so that they are able to pay their own bills.
Related or Semi-related Video
Finance: What is the Fair Debt Collectio...1 Views
Finance allah shmoop what is the fare debt collection practices
act fair debt collection That doesn't sound like a euphemism
for the guys with the baseball bats who knocked gently
on your door and talk with you quietly about your
poker losses there Well that whole goodfellas thing became such
a problem that the feds had to get involved in
established rules as to how far those guys with the
baseball bats could go and they came up with the
following a they can't use them the baseball bats to
hit your knee caps anyway if you don't pay your
bills be they have to listen to your pushback on
like a safe space is literally safe Space is not
like the kind of uc berkeley so they can't call
you at work and castle you thereabout bills if you
tell them not to and see they can't call you
at home in the middle of the night or bang
on your door at two a m and wake the
kids and terrify you about your bills that you owe
you owe well basically this act which became law in
nineteen seventy seven established the notion that even if you
really are a total deadbeat somebody who was stupid enough
to loan you money like you don't pay your bills
you promised to pay them and you just don't you
don't pam back You don't care about your honor self
respect you're a deadbeat but the feds took the perspective
that wealth Somebody was stupid enoughto loan you that money
in the first place and they can on li yu's
quote fair means unquote to collect the money you promised
to pay them back So what's fair Well this is
fair and this is not fair They're not they're they're
not fair All right you get the picture paid your 00:01:41.055 --> [endTime] bills
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