What is the average collection period?

The formula is accounts receivable divided by average daily credit sales. It is mathematically equivalent to DSO. The difference is mostly context: finance teams and lenders tend to call it the average collection period when comparing it against stated payment terms or industry benchmarks; AR and collections teams are more likely to call it DSO.

A collection period shorter than your net terms means most customers are paying on time or early. A collection period longer than your terms means the opposite — and the gap shows how much working capital you are financing on behalf of your customers. Closing that gap by even 10 days on a $500k annual AR book frees a meaningful amount of cash with no change in revenue or pricing.