Software to optimize the average collection period

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The average collection period is a financial indicator that allows your business to know how long it takes to collect on invoices or debts owed to your customers. As it is a financial indicator, knowing what the average collection period is can tell you how positive the financial health of your organization is. In this post, we provide you with more information about the average collection period (ACP) and how a collection system can optimize it.

What will you find in this text?

Why is it important to know the average collection period?
Tips to improve your average collection period
How can a collection software improve your average collection period?

Why is it important to know the average collection period?
Knowing the average collection period is necessary because it allows you to have a clearer view of your cash flow, as well as how your company's capital is managed. Calculating the average collection period buy usa email list quite simple, as it consists of dividing the average customer balances by the multiplication of the year's sales, which in turn are multiplied by 1 + the tax. All of this is multiplied by 365 and you have the average collection period.

PMC = 365 x ( ( Average customer balances ) / ( Sales for the year x ( 1 + Tax ) )

In case you have any doubts, below we define each of these elements:

Average Customer Balances: Average customer balance refers to the average amount of money or value that customers have in an account or portfolio during a specific period. To determine the average customer balance, you need to take the balance from two equal periods, add them together, and then divide that sum by two.
Sales for the year: as its name indicates, it is the sum of sales during the period (in this case a year).
Tips to improve your average collection period
Now that you know what the average collection period is and why it is important, we offer you some tips that will help you improve it.

Provide the invoice once the goods have been delivered or the service provided.
Improve the rate of sending said invoice; you must do it as quickly as possible. When negotiating the payment period, try to make it as short as possible, within the current legislation.
It speeds up the collection process itself.
Implement debt collection software that allows you to better control your portfolio and communications with it.

How can debt collection software improve your average collection time?
Collection software can help improve your average collection time in several ways:

First, you can automate and streamline the process of tracking and managing outstanding payments, reducing delays in recovering funds.
By using automatic reminders and scheduling collection actions based on predefined rules, the software can send notifications and notices to customers, reminding them of due dates and encouraging timely payments.
Collection management software can offer tools for analyzing and segmenting customers based on their payment behavior, allowing you to identify patterns and prioritize collection actions based on the likelihood of late payment or non-compliance. This allows you to optimize your resources and focus on those customers who require more urgent attention.
A debt collection system typically provides reports and dashboards that offer a clear, up-to-date view of your debt collection metrics, such as average collection time. This allows you to monitor performance, identify areas for improvement, and make data-driven decisions to optimize your debt collection process.