Collection Ratio

Ratio of a company account receivable to its average daily sales. Average daily sales are obtained by dividing sales for an accounting period by the number of days in the accounting period-annual sales divided by 365, The ratio is an average of the amount of time that is usually necessary for payment on the invoice issued for a given calendar period to be paid in full by the customers. The time frame for factoring the collection ratio begins with the date of issue on the invoices, and concludes once the outstanding invoices have either all been paid or the some unpaid invoices have been written off the receivables account.

Accounts Receivable

A high ratio indicates that the company is having troubles getting paid for services or products.

The ratio is sometimes seasonally affected, increasing during busy seasons and declining during the off-season.

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