Average Collection Period

Posted in Finance, Accounting and Economics Terms, Total Reads: 1700
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Definition: Average Collection Period

Average collection period is also referred to as Days sales outstanding (DSO). It refers to the collection efficiency of the organization or the average number of days it takes for the organization to collect the receivables after a sale has been made.

Mathematically,

DSO

Example

Consider an organization with an average accounts receivable of Rs. 100 with an annual sales of Rs. 1000.

DSO = (100/1000)*365 = 36.5 days

This implies that on an average the company takes 36.5 days to collect the receivables after the sale has been made.



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