What is the collection period?

collection time concerns the amount of time required by a seller to collect debt. Most of the daily transactions, such as a petrol station or food store, are made with a period of collection "payable after admission". This means that the purchase is paid at the same time when purchasing. In some industries, however, it is common for the customer to be invoiced for an already received product. The customer usually has from 1-30 days to pay the invoice, but negotiations can be made for the purpose of paying the invoice for months or even years. This is often not the same for buying business companies where it is common for the seller to invoic the customer for the goods already received. The amount of time needed to pay an invoice is called the collection period.

The seller may set the conditions of invoices generated for the company. These conditions are listed as "Net 30" or "Net 45", which means that the invoice is due in 30 or 45 days. However, this does not mean that the customer will definitely pay an invoice in this period of time. WellHo customers stretch the payment of invoices for 60-90 days or more. It is up to the seller to decide whether the customer pays a fine for late payment or whether other credit can be suspended until all invoices are up to date.

money flow management during the collection period is decisive for the overall successful operation of any company. When the manufacturer processes the order, he must pay the costs of the goods either in advance or on the invoiced account. The goods must then be processed and sent to the customer. Meanwhile, the payment is caused by the original supplier, while the customer has to pay for the goods. Therefore, manufacturers need Capitaal in reserve so that invoices can pay in time and wait for a possible payment from the customer.

To shorten the length of the collection period, the seller can use motivation to support payment faster. This is called a discount with rapid rewarding. The seller can offer 2% discount if the invoice is paid in 10 days. For example, the conditions of such an invoice would be "2% 10 days net 30", whatIt means that if the invoice is paid within 10 days, there is 2% discount and the balance is due in 30 days from the date of the invoice.

debt collectors can be hired to reduce the length of the collection period. The debt collector will approach the list of people who owe corporate money and try to withdraw these debts in a quick manner. However, the debtor's collector charges a fee for the service, usually a percentage of the amount collected.