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Average Receipts Period Concept
Average Receipts Period is an activity
indicator that seeks to measure the efficiency level with which the
company is managing its clients credit. The bigger the average receipts
term, lower is the credit policy efficiency.
Average receipt period is calculated by
the division of the average amount of clients credit by the total sales
(added the taxes owed to the company by the clients, namely VAT) at a
certain period of time. The indicator can then be converted in days,
weeks or months, being enough for that to multiply the result obtained
by 365, 52 or 12, accordingly (considering naturally that the considered
period was one year).
If a company practices a more strict
credit policy, the average receipts term decreases. However, sales have
the tendency to decrease since some clients can resort to other
suppliers with more flexible credit policies. Therefore, the clients’
credit decisions should take into consideration these two variables.
An alternative to the average receipts
term to measure the company’s efficiency in the management of its
clients’ credit is the clients’ rotation ratio that measures the number
of times that the clients’ credit amount is converted in sales during a
certain period of time.
Translated from Portuguese
by Susana Saraiva, Portuguese-English and English-Portuguese translation
specialist. Contact: spams@sapo.pt.
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