What is the average payment period?

The average payment period is a measurement of how long it takes an average to return its creditors. The calculation requires the division of loans of loans by 365 days a year and then the distribution of this amount into the total accounts due per year. Companies use the average payment period to find out how effectively their creditors apply, and thus ensure that payments are made in a quick manner. Ideally, this period can be reduced as much as possible, although it should always be measured compared to the credit conditions offered by the company concerned.

Most of the business world run on credit transactions. Many companies use a loan as a way to make purchases before they have the actual capital they will pay for them. Of course, they will be responsible at some point for repaying all other companies that have an extension of the loan. If the company can identify shortcomings in its return creditors, they can avoid unnecessary complications for their business operations. That's why she's averagePayment period with such an important tool.

As an example of how the average payment period is calculated, imagine that a certain company has made a total of $ 730,000 (USD) when purchasing loans in one year. The division of this amount by 365 days a year brings average purchases of loans per day. In this case, this amount reaches $ 2,000. This is the first half of the equation.

6 Using the same example, imagine that the company's accounts payable per year are $ 60,000. The average payment period is determined by the distribution of accounts payable by the average credit purchase per day. In this case, it would be $ 60,000 distributed $ 2,000 USD, which provides quotient 30. The company therefore takes an average of 30 days for the creditors to return.

It is important to realize that this number is only important in terms of credit arrangements set by the company. Specific companies could set different plans to be VRcredited for the loan offered to others. Of course, the average payment period should remain below the time that creditors prefer to receive their payment.