What is a Collection Ratio?
Sometimes referred to as the average collection period, a collection ratio has to do with the outstanding Accounts Receivable of a given company. The ratio is an average of the amount of time that is usually required for payment on the invoices 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 few unpaid invoices have been written off the receivables account. Collection ratios are a helpful calculation for many businesses. By understanding the average amount of time it takes for customers to pay outstanding receivables, the company can evaluate the current procedure for creating and issuing invoices. For example, the company may be issuing invoices once a month, and thus missing the payment cycle that is common to most of the customer base. Since the invoices are received after the cut off dat
