Also called the Average Collection Period, this is the average length of time that it takes a company’s credit customers to pay their debts. The lower the period, the better it is for the business, as it means that funds are more quickly available for operating expenses or to service its own debts. A long average collection period is a warning sign that the company may be extending credit to too many high-risk customers or that general economic conditions are worsening.

[BACK TO ACCOUNTING TERMS]