In calculating average collection period, which factor primarily affects the results?

The average collection period is a key financial metric that measures how long it takes, on average, for a company to collect payment from its customers after a sale has been made. The primary factor that affects this calculation is total receivables. Total receivables represent the amount of money owed to the business by its customers for sales made on credit.

In calculating the average collection period, the formula typically involves dividing total receivables by the average daily sales. This means that any changes in total receivables directly impact the average collection period. When total receivables increase, it suggests that the company has a higher outstanding amount to collect, which could lengthen the average collection period. Conversely, a decrease in total receivables implies that the company is collecting payments more efficiently, potentially shortening the average collection period.

Other factors listed, such as total revenues, net income, and total assets, while important for assessing company performance, do not provide a direct measurement of the time taken to collect payments from customers. Total revenues reflect overall sales, net income pertains to profitability after expenses, and total assets represent the total ownership value, none of which directly influence how quickly accounts receivable are converted into cash. Therefore, total receivables is the