AVERAGE COLLECTION PERIOD
CONDITION
| Year : | 2006 |
| Your ratio : | 8.5 |
| Industry Avg : | 2.3 |
| Net Sales : | $1,001,557 |
| Account Receivables : | $23,326 |
| Trade Receivables : | $0 |
GRAPH
AVERAGE COLLECTION PERIOD
This Ratio reflects how easily the company can collect on its customers. It also can be used as a gauge of how loose or tight the company maintains its credit policies. The speed at which bills are collected has a significant impact on a business' cash flow. Watch out for the Average Collection Period rising over time. This could be an indicator that the company's customers are under pressure, which could spell trouble ahead. This could also indicate the company has loosened its credit policies with customer, possibly extending credit to companies with unacceptable risk. If daily collection period is increasing over time, your Current and Quick ratios may become impaired. If this is happening, consider modifying your collection policies and practices immediately.
This indicator demonstartes how quickly your customers are paying their bills by revealing the average length of your collection period.Ideally, the average collection period will be less than your credit terms, plus 15 days. The speed at which bills are collected has a significant impact on a business' cash flow.Use this ratio to determine how long your company's money is being tied up in customer credit.If you allow different credit terms for different transactions- net plus 30 days for some customers,net plus 60 for others-calculated the average collection periods.
The perfomance of this ratio versus peers indicates that you need to increase your collection efforts and results. Some receivables may need reviewed to determine whether they will be able to be collected.If they are not able to be collected, you may want to consider writing them off. Note: Write offs will affect Quick and Current Ratios.