Business – 5.1 Business finance – Working capital | e-Consult
5.1 Business finance – Working capital (1 questions)
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The average collection period is calculated as:
| Average Collection Period = (Trade Receivables ÷ Credit Sales) × 365 |
Substituting the figures:
| Average Collection Period = (£120,000 ÷ £720,000) × 365 |
| = 0.1667 × 365 |
| ≈ 61 days |
Therefore, the business takes on average about 61 days to collect its trade receivables.