What is a borrower's selection period?
The debtor's collection period is part of the time that is needed to make the company's customers to receive billing for elaborated goods and services, plan to pay for these invoices, and eventually offered the payment to the provider. Usually the collection hours begin on the day the invoice is issued and ends on the day when the payment for this invoice is published. Companies will monitor both the period of collection of debtors for each individual customer, and also regularly take a picture of the average of the debtor's selection period in terms of the entire customer base. This allows this to find out when the period goes through a certain increase and to allow the company to take appropriate measures to shorten the period to average that is more convenient. 6. This is carried out by identifying the number of active debtors on the first day of the period and active debtors on the last day of the period. These two characters are added and then divided by two to provide the necessary diameter.
As soon as the average number of debtors is determined for the period, the duration of the period is detected. Depending on the reason for the calculation, the duration may be the entire calendar year, a quarter or even a week. The final result will provide multiplication of the average number of debtors with a length expressed in the number of days involved in the period. In some cases, it may be appropriate to calculate the period of the selection of debtors using 12 months instead of 365 days, depending on how the resulting data will be used in the analysis of invoices in the viewing accounts. This number is then divided by the tcel number of sales generated during the considered period for identifying the average period of the debtor's selection in a specific time frame.
Ideally, the aim is to achieve a period of selection of debtors, which is rather shorter than longer. For example, if the calculation suggests that the average collection time of the debtor is 60 days or less, it is a sign of healthy turnover in receivables that probably provide a fair amount of cash flow.On the other hand, if the average period of collection is more in line with 90 days, the owners and managers of the company want to carefully explore current policies and procedures, as well as to identify specific customers who can significantly contribute for longer, causing potential flow flow problems.