Published On: September 27, 2025 | Last Updated: September 27, 2025
The accounts receivable collection period refers to the average time it takes for a business to receive payment after a sale has been made on credit. It is a key measure of how efficiently a company manages its outstanding invoices and customer payments.
This metric is critical because it directly impacts cash flow, liquidity, and overall business sustainability. A shorter collection period means cash is coming in faster, supporting operations and growth, while a longer period can strain working capital.
Some industries consistently experience longer collection periods due to structural or operational challenges. These may include factors such as the nature of contracts, customer payment behavior, and the scale of transactions. Understanding these industry patterns helps businesses set realistic expectations and plan financial strategies more effectively.
Understand the Accounts Receivable Collection Period
The accounts receivable collection period, also called the AR collection period, is the average number of days a company takes to collect payments from customers after a credit sale. It shows how quickly a business converts its receivables into cash, making it one of the most important indicators of financial efficiency.
The days receivable formula is:
Days Receivable = (Average Accounts Receivable ÷ Net Credit Sales) × Number of Days
While the average days to collect accounts receivable and the AR collection period are often used interchangeably, there is a subtle difference. The collection period highlights how long it takes, on average, to receive payment, while average days to collect provides a snapshot of this timeframe for a specific reporting period.
Tracking days in accounts receivable is critical because it directly reflects liquidity and cash flow. A shorter period means funds are available sooner to cover expenses and reinvest in growth, while a longer period may indicate inefficiencies or customer payment issues.
Why Some Industries Have a Longer Receivable Collection Period
The accounts receivable collection period varies across industries. Some businesses experience longer collection times due to their operations, payment structures, and customer base. Using accounts receivable financing can help these companies access cash faster, improving cash flow while waiting for payments and supporting smoother business operations.
Key factors include:
- Complex contracts and billing cycles – Multi-stage projects and detailed invoicing requirements can slow down the payment process.
- Reliance on third-party payers or government funding – Payments often require approvals and verifications, which extend the receivable collection period.
- Extended project timelines – Industries with long project lifecycles, such as construction or media production, typically issue invoices after milestones or completion.
- High accounts receivable risks – Larger outstanding balances increase the chance of strained working capital, delayed business growth, and a greater dependence on borrowing.
Industries with the Longest Average Accounts Receivable Days
The accounts receivable collection period can vary significantly across industries, with some sectors consistently reporting longer cycles due to the way they operate. These extended timelines affect cash flow, liquidity, and overall financial stability, making it essential to understand why certain industries face delays in converting receivables into cash.
Healthcare and Medical Sector
In healthcare and medical services, long billing cycles are common because providers often depend on third-party payers such as insurance companies. The processes of claim approvals, rejections, and verifications stretch the average collection period to anywhere between 45 and 70 days. This makes efficient billing and collection systems essential for providers to maintain financial stability.
Construction and Contracting
The construction and contracting industry also deals with extended receivable timelines. Projects often run for months or even years, with payment terms tied to milestones or project completion. Progress billing and retainage practices push the average collection period to around 60 to 70 days, creating a frequent need for additional working capital.
Staffing Agencies
Staffing agencies face a unique challenge in accounts receivable management. While they must pay employees on time, they often wait weeks before clients reimburse payroll costs. This delay results in a significant percentage of receivables being past due, which makes it difficult to maintain consistent cash flow.
Manufacturing and Wholesale
Manufacturing and wholesale businesses often experience slower receivables due to extended payment terms negotiated by customers, especially for bulk or large orders. Collection periods typically range from 40 to 60 days, creating pressure on suppliers to manage working capital effectively while waiting for payments.
Transportation and Logistics
Transportation and logistics companies are also known for lengthy receivable collection periods. Freight bills can take 30 to 90 days to settle due to billing disputes, credit extensions, or shipment verification processes. This often leads to a considerable portion of receivables being delayed, which disrupts cash flow and operational efficiency.
Across these industries, extended accounts receivable collection times highlight the importance of monitoring the days receivable formula and implementing strong AR management practices. By keeping track of the average accounts receivable days, businesses can better anticipate cash flow challenges and take proactive steps to protect long-term financial stability.
Impact of a Long Accounts Receivable Collection Period
A lengthy accounts receivable collection period can have far-reaching consequences on a company’s financial health and long-term growth. When cash remains tied up in unpaid invoices, businesses face limitations that affect both daily operations and strategic decision-making. The main impacts include:
- Slows down reinvestment in operations
Limited cash flow restricts the ability to fund expansion, technology upgrades, or process improvements that drive efficiency. - Increases dependence on external financing
Companies with high AR days often rely on loans, credit lines, or factoring to cover gaps, leading to higher borrowing costs. - Risk of bad debt write-offs
The longer receivables remain unpaid, the greater the chance they will turn into bad debt, weakening financial stability. - Weakens competitive positioning
Reduced liquidity makes it harder to respond quickly to opportunities, negotiate favorable terms, or maintain a strong market presence.
Strategies to Improve Accounts Receivable Collection
Businesses facing a long accounts receivable collection period can take proactive steps to accelerate payments and strengthen cash flow. By combining policy changes with technology and financing tools, companies can reduce risk and improve liquidity. Key strategies include:
- Tighten credit policies
Establish clear credit terms, evaluate customer creditworthiness, and set limits to minimize the risk of delayed payments. - Use invoicing automation and reminders
Automated billing systems and timely reminders help ensure invoices are sent promptly and customers stay on track with payments. - Offer early payment incentives
Discounts or small rewards for early payments can motivate customers to settle invoices faster, reducing AR days. - Leverage factoring or financing
Converting receivables into immediate cash through factoring or specialized financing helps shorten the AR collection period and maintain liquidity.
Conclusion
Industries such as healthcare, construction, and manufacturing often face some of the longest receivable collection periods, creating constant strain on working capital. Monitoring the average days to collect accounts receivable is critical for maintaining financial health and sustaining growth.
At Epoch Financial, we specialize in helping businesses manage these challenges. We provide tailored financing solutions that convert outstanding receivables into immediate cash, giving companies the stability and flexibility they need to operate with confidence. If your business is carrying high accounts receivable, we are here to support you in strengthening cash flow and ensuring uninterrupted operations.
Frequently Asked Questions
How to record collection of accounts receivable?
To record the collection of accounts receivable, debit the Cash account to show money received and credit the Accounts Receivable account to reduce the outstanding balance. This reflects the payment received from a customer and updates the books accordingly.
What is the 10 rule for accounts receivable?
The "10 rule" in accounts receivable is a common business practice where customers are offered a 2% discount if payment is made within 10 days of the invoice date. If they don’t take the discount, the full invoice amount is due within the standard credit period (often 30 days). This is typically expressed as 2/10, net 30.
What is the accounts receivable collection cycle?
The accounts receivable collection cycle is the process a business follows to issue invoices and collect payments from customers. It usually starts with the sale of goods or services, followed by invoicing, monitoring outstanding balances, sending reminders, and finally receiving payment. The efficiency of this cycle determines how quickly a company can convert credit sales into cash.
How do you calculate the collection period of accounts receivable?
The collection period is calculated using this formula:
Collection Period = (Average Accounts Receivable ÷ Net Credit Sales) × Number of Days
This measures how many days, on average, it takes a company to collect payments from customers. A shorter collection period indicates faster cash conversion and healthier cash flow.
What are the two methods of recording accounts receivable?
There are two primary methods of recording accounts receivable:
- Direct Write-Off Method – Bad debts are recorded only when they are determined to be uncollectible.
- Allowance Method – A reserve for doubtful accounts is created in advance, estimating uncollectible debts based on historical data.
The allowance method is more widely used, as it aligns better with the matching principle in accounting.
