Collection period

A collection period is the average number of days required to collect receivables from customers. A shorter collection period is considered optimal, since the creditor entity has its funds at risk for a shorter period of time, and also needs less working capital to run the business. However, some entities deliberately allow a longer collection period in order to expand their sales to customers having lower credit quality.

The collection period calculation does not include the collection period for non-trade receivables, such as advances to employees, since doing so would skew the result of the calculation.