average receivable collection period investment & finance definition

The amount of receivables turnover (net sales divided by average receivables) divided by the average receivables to calculate how many times during the year that accounts receivable turns over. Average receivables are equal to the sum of beginning receivables and ending receivables, divided by two. The number alone doesn’t provide much information. It must be compared to average receivable collection periods for other companies in the industry, as well as past collection periods, to find out if collection times are increasing or decreasing.