The average number of days it takes a business to collect payment from customers after a sale is made, also known as Days Sales Outstanding (DSO).
Average Collection Period (ACP) measures the efficiency of a company's credit and collection policies. A shorter ACP means faster cash conversion and better liquidity. A longer ACP may indicate loose credit policies, inefficient collections, or customers with financial difficulties. Industry benchmarks vary widely — retail typically has 5–15 days, while manufacturing may have 45–90 days. Tracking ACP monthly helps identify trends and take corrective action before cash flow problems develop.
A company has average AR of ₹12,00,000 and annual net credit sales of ₹72,00,000. ACP = (₹12,00,000 ÷ ₹72,00,000) × 365 = 60.8 days. If the credit terms are Net 30, this means customers are paying roughly 31 days late on average.
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It depends on your credit terms. If you offer Net 30, an ACP under 35 days is good. The closer ACP is to your credit terms, the better. Compare against your industry average and track the trend over time — increasing ACP is a warning sign.
Offer early payment discounts (e.g., 2/10 Net 30), automate invoice reminders, require advance payments for new customers, tighten credit approval criteria, follow up promptly on overdue invoices, and consider invoice factoring for persistent late payers.
Money owed to a business by its customers for goods or services delivered but not yet paid for.
The time duration a seller allows a buyer to pay for goods or services after delivery, typically expressed in days (e.g., Net 30, Net 60).
The difference between a company's current assets and current liabilities, representing the short-term liquidity available for day-to-day operations.
A report that categorizes accounts receivable or payable by the length of time invoices have been outstanding, typically in 30-day buckets.
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