The average collection period is the amount of time it takes for a business to receive payments owed by its clients in terms of accounts receivable.

The average collection period shows the average number of days necessary to convert business receivables into cash.

**Formula to calculate average collection period.**

**Example:**

Suppose the average account receivables per day of a grocery store is $50,000 while the average credit sales per day is $20,000. Calculate the average collection period.

Therefore, the average collection period is 2.5.