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Debtor Collection Period

The Debtor Collection Period is a financial metric that measures the average time it takes for a company to collect payments from its customers (debtors) after a sale. It is calculated by dividing accounts receivable by total credit sales and multiplying by the number of days in the period. A shorter debtor collection period indicates that the company is collecting payments quickly, which is beneficial for cash flow.

Example

A company with $100,000 in accounts receivable and $500,000 in credit sales over 90 days has a debtor collection period of 18 days, meaning it takes an average of 18 days to collect payments from customers.

Key points

• The debtor collection period measures the average time it takes for a company to collect payments from customers.

• A shorter period is favorable, as it indicates faster payment collection and better cash flow management.

• It is calculated using accounts receivable and total credit sales.

Quick Answers to Curious Questions

A shorter collection period (typically under 30 days) is considered good, as it indicates efficient payment collection.

It is calculated by dividing accounts receivable by total credit sales and multiplying by the number of days in the period.

It helps companies assess their cash flow management and determine how efficiently they collect payments from customers.
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