The cash collection cycle is the number of days it takes to collect accounts receivable. The measure is important for tracking the ability of a business to grant a reasonable amount of credit to worthy customers, as well as to collect receivables in a timely manner. The concept is not the same as the cash conversion cycle, which is a longer period beginning with the outflow of cash to pay for goods and ending with the subsequent receipt of cash from the sale of those goods.

The cash collection cycle should be kept as short as possible for the following reasons:

• An older invoice may not be acceptable as collateral for a loan.
• An older invoice may not be acceptable for invoice discounting
• An invoice is generally more difficult to collect the longer it remains outstanding

Conversely, it may be acceptable to have a longer cash collection cycle if management uses a relaxed credit policy to extend credit to more marginal customers for which the probability of collection is lower than usual.