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Tip: Regularly monitor the average collection period to identify if improvements can be made in your payment collection process.
As you optimize your cash flow, consider using our Liquid Net Worth Calculator to assess your financial health and available liquid assets.
The Average Collection Period (ACP) is a key metric that tells you how long, on average, it takes to collect outstanding payments from credit sales. A shorter ACP means your business is collecting payments quickly, which can help improve cash flow. A longer ACP could indicate delayed payments, which may negatively affect liquidity and working capital.
Industry | Typical ACP (Days) |
SaaS / Software | 15 – 45 |
E-commerce | 20 – 40 |
Healthcare | 30 – 60 |
Manufacturing | 30 – 90 |
Financial Services | 10 – 30 |
Note: These benchmarks can vary based on business models, customer payment behavior, and sales processes. Always compare your ACP with industry standards and adjust credit policies as needed.
Scenario:
Calculation:
Average Collection Period=[(50,000+60,000)/2]÷500,000×30=3 days
Interpretation:
Your average collection period is 3 days, which indicates that, on average, it takes your business 3 days to collect payments after making a credit sale. A shorter collection period generally indicates efficient collections.
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Answers to Frequently Asked Questions
It’s the total amount a company spends annually on operations, including both fixed and variable costs, excluding any direct revenue-generating activities.
It helps you understand your daily operational expenses and ensure your pricing and revenue models are sustainable.
Streamline operations, reduce overhead costs, optimize pricing, and improve cost-effectiveness in every department.
By monitoring your CODB and ensuring that your daily revenue exceeds your cost per day, you can ensure higher profit margins.
Calculate it annually for a broad overview but monitor it monthly to adjust your strategies as needed.