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What is the accounts receivable collection period?

The accounts receivable collection period is similar to the days sales outstanding or the days sales in accounts receivable.

To illustrate the accounts receivable collection period, let's assume a corporation had net credit sales of $360,000 during the past year and its accounts receivable balance was on average $40,000. The average credit sales per day were approximately $1,000 per day ($360,000 of annual credit sales divided by 360 or 365 days per year). The average accounts receivable balance of $40,000 divided by $1,000 of credit sales per day equals 40 days.

An alternative calculation is to use the accounts receivable turnover ratio. In our example, the accounts receivable ratio is 9 times per year ($360,000 of net credit sales divided by $40,000—the average accounts receivable balance). 360 days per year divided by the accounts receivable turnover of 9 equals 40 days.