What does the Collection Period measure?

The Collection Period measures the effectiveness of the credit and collection department by indicating the average number of days it takes for a company to collect payment from its customers after a sale has been made. It reflects how well the company manages its receivables and overall cash flow. A shorter collection period suggests that the company is efficient in collecting payments, maintaining a healthier liquidity position, and potentially reducing the risk of bad debts.

While the other choices may pertain to financial metrics or management aspects, they do not directly relate to the function of the Collection Period. Understanding the Collection Period helps HR and finance professionals assess the company's credit policies, customer payment behaviors, and impact on working capital, which are vital for sound financial management.