We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Accounting

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What Is a Debtor Collection Period?

Malcolm Tatum
By
Updated: May 16, 2024
Views: 25,050
Share

A debtor collection period is the amount of time that is required for customers of a business to receive invoicing for goods and services rendered, schedule payment for those invoices and ultimately tender that payment to the provider. Typically, the collection period begins on the date the invoice is issued and ends on the date that the payment for that invoice is posted. Companies will monitor both the debtor collection period for each individual customer and also periodically take a snapshot of the average period as it relates to the entire customer base. Doing so makes it possible to identify when the period is undergoing some sort of increase, and allow the company to take appropriate action to reduce the period to an average that is more advantageous.

The basic formula for calculating any type of debtor collection period for a customer base as a whole begins by identifying the average number of debtors relevant to the time period under consideration. This is done by identifying the number of active debtors on the first day of the period as well as the active debtors on the last day of the period. Those two figures are added and then divided by two in order to provide the necessary average.

Once the average number of debtors for the period is established, the duration of the period under consideration is identified. Depending on the reason for the calculation, the duration may be a full calendar year, a quarter, or even a week. Multiplying the average number of debtors by the duration, expressed in the number of days involved in the period, will provide the final result. In some cases, it may be appropriate to calculate the debtor collection period by using 12 months instead of 365 days, depending on how the resulting data will be used in analyzing the aging of invoices in the accounts receivables. That figure is then divided by the total number of sales generated during the period under consideration to identify the average debtor collection period for that particular time frame.

Ideally, the goal is to achieve a debtor collection period that is shorter rather than longer. For example, if the calculation indicates that the average debtor collection period is 60 days or less, this is an indication of a healthy turnover in the accounts receivables that is likely providing an equitable amount of cash flow. On the other hand, if the average collection period is more along the lines of 90 days, company owners and managers will want to look closely at current policies and procedures, as well as identify specific customers who may be contributing significantly to the longer duration, causing potential issues with cash flow.

Share
SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
Share
https://www.smartcapitalmind.com/what-is-a-debtor-collection-period.htm
Copy this link
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.