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Tighten your cash cycle with Average Collection Period

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You make the sale. The invoice gets issued. Then… nothing. Days pass. Weeks. Cash remains tied up.

That's where tracking your average collection period becomes a game changer.

It tells you how long it really takes to get paid — and why shortening that cycle can free up cash and reduce stress. Here’s everything finance teams need to know — plus how Runway helps turn insights into action.

1. What is Average Collection Period, and why does it matter?

Average Collection Period measures how many days, on average, it takes your company to collect payment after making a credit sale.

The formula is:

Average Collection Period = (Average Accounts Receivable / Net Credit Sales) × Number of Days in Period

Where:

  • Average Accounts Receivable = (Beginning AR + Ending AR) / 2
  • Net Credit Sales = Total sales on credit (not cash sales)
  • Number of Days = 365 for annual, 90 for quarterly, 30 for monthly

Finance teams monitor this metric to understand cash flow patterns and evaluate the effectiveness of their credit and collection policies.

With Runway's reporting feature, you can track this metric alongside other key financial indicators in real-time.

2. How to calculate it — step by step

Let's break down the calculation process:

  1. Find your beginning and ending accounts receivable balances for the period
  2. Calculate average accounts receivable: (Beginning AR + Ending AR) / 2
  3. Determine your net credit sales for the period
  4. Divide average accounts receivable by net credit sales
  5. Multiply by the number of days in the period

Example: Your company has beginning AR of $80,000, ending AR of $120,000, and net credit sales of $1,000,000 for the year.

  1. Average AR = ($80,000 + $120,000) / 2 = $100,000
  2. Average Collection Period = ($100,000 / $1,000,000) × 365 = 36.5 days

This means it takes your company about 36.5 days on average to collect payment after a sale. Learn more from Investopedia and Accounting Insights.

Runway's intuitive modeling makes these calculations automatic, giving you instant visibility into your collection efficiency.

3. What Average Collection Period tells you about your operations

This metric provides several insights about your business:

Short Collection Period:

  • Improved cash flow and liquidity
  • Effective credit policies and collection procedures
  • But possibly strict credit terms that might strain customer relationships

Long Collection Period:

  • Potential cash flow problems
  • Ineffective collection efforts or credit policies
  • Working capital tied up that could be used elsewhere

According to a 2024 FERF study, reducing your average collection period by 20% can increase available working capital by 15% source.

External factors like industry norms, seasonality, economic conditions, and customer mix all influence this metric. And be aware of limitations: accrual accounting can distort results, the calculation excludes cash sales, and it doesn't account for the quality of receivables. Learn more from FasterCapital.

Collaborative planning in Runway allows your team to analyze these factors together, and develop strategies to address collection issues.

4. What’s a good benchmark?

Industry standards vary significantly:

  • Manufacturing: 45-60 days
  • SaaS and Subscription Services: 30-45 days
  • Retail: 20-40 days
  • Healthcare: 40-55 days

Additional benchmark data: Serrala – How to Calculate Average Collection Period

According to KPI Sense, "Typically, A/R cycles in SaaS last around 30 days, but this can vary depending on industries. Make sure to benchmark yourself against your competitors to see how you compare."

Your company size, growth stage, and payment terms all affect what's "good" for your business. Runway's industry template library helps you compare your performance against relevant benchmarks and set appropriate targets.

5. How Runway helps you reduce collection days

Runway offers several tools to help you manage your average collection period:

  • Real-time receivables dashboard that shows current and historical collection periods
  • Scenario modeling to test how changes to credit terms might impact cash flow
  • Drill-in capabilities to identify which customers or invoices are affecting your metrics

To improve your collection period with Runway:

  1. Import your accounts receivable data through our self-serve accounting data integrations
  2. Use time comparisons to track improvements over different periods
  3. Model the impact of potential policy changes before implementing them

Every day shaved off your collection period frees up cash to:

  • Redeploy into revenue-driving activities
  • Reduce borrowing
  • Smooth seasonal revenue dips
  • Improve business agility

Transform your receivables management from a financial bottleneck to a strategic advantage.

Book a demo today to see how Runway can help you optimize your cash flow cycle.