What is credit period analysis?

Credit period analysis examines the payment terms offered to clients and the actual payment patterns, comparing the offered terms to the realized collection timing. For professional service firms, this analysis reveals whether clients are paying within terms, identifies clients consistently paying late, and informs decisions about term adjustments.

Key characteristics

• Compares offered terms to actual payment timing

• Identifies consistently late-paying clients

• Informs term adjustment decisions

• Should be performed quarterly

• Affects cash flow planning

• Input to credit policy decisions

Why it matters for professional service firms

Offering Net 30 means nothing if clients pay Net 55. Credit period analysis reveals the gap between terms and reality. Professional service firms should analyze whether terms are being honored, address clients who consistently abuse terms, and potentially reward those who pay promptly with continued favorable terms.

Real-world example

Brian's firm offered Net 30 terms. Credit period analysis: 35% of clients paid within terms (good), 40% paid Net 35 to 45 (tolerable), 25% paid beyond Net 45 (problem). The 25% accounted for 60% of the collection effort. Client-level analysis: identified 8 specific clients who consistently paid beyond Net 60. Actions: direct conversations with chronic late payers (3 improved, 2 put on shorter terms with late fees, 3 moved to prepayment). The overall average collection period improved from 42 days to 35 days through targeted actions informed by credit period analysis.