The average collection period may last up to 40 or 45 days, depending on the ratio of accounts receivables and total credit sales for a particular firm. The business's debt collection system is more efficient if the average collection period is shorter.
The average collection period should be aligned with the credit policy of the business. If a company expects to collect its accounts receivables in 30 days, but the average collection period is 45 days, the policy should be reviewed.
Credit sales are sales for which payment is not immediate and can be obtained from the income statement. The balance sheet provides the number of accounts receivable.