is defined as mean maturation period (PMM) the period of time between the payment of the products to the suppliers and the payment made to the clients for said product in a currency, that is, until it becomes liquidity for the company.
In this sense, it responds to the days it takes a certain company to recover the money spent during the product life cycle. Therefore, it is measured in days and establishes an approximation to the dynamic liquidity of a company.
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In this article you will find:
Stages of the Average Ripening Period
In the middle maturation period, 5 stages stand out:
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Average Provisioning Period (PMA)
Corresponds to the time that elapses since the purchase of the raw Materials, until they are introduced in the production process.
It is obtained by dividing the average balance of materials by the amount of raw materials used daily.
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Average manufacturing period (PMF)
It corresponds to the time taken to manufacture the products.
To obtain it, the average balance of the products that are in the manufacturing process must be divided, and the daily cost of production (see more in costs direct and indirect production).
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Average sales period (PMV)
It corresponds to the time elapsed since the finished products are stored until they are sold.
It is obtained from the division of the balance of finished products located in the warehouse, among the finished products sold each day.
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Average collection period (PMC)
It corresponds to the time elapsed between the sale and the collection of the products.
It is obtained by dividing the average balance in accounts receivable, among all daily credit sales.
Average period of payment to suppliers (PMP)
It is the time it takes to pay suppliers. Its formula consists of a simple division between accounts payable and the averages that are made on credit per day.
When an average period of maturation (PMM) It is considered short, it refers to the fact that the company operates at a fast pace, through an effective and efficient organization.
Rotation is known as the number of times a cycle repeats itself, the lower the PMM, the greater the number of rotations, however, a high PMM presumes a low turnover and consequently higher financing and higher costs. high.
How is the PMM calculated?
The PMM is calculated by the sum of the average periods described above, not including the average supplier payment period.
PMM = PMA + PMF + PMV + PMC
The average maturation period and its components are easier to understand graphically, according to the life cycle of a company:
Any shortening in the aforementioned deadlines implies greater management efficiency and otherwise any lengthening reveals a management deficiency.
From a financial point of view, the PMMF can be calculated, taking PMP into account. It is obtained by subtracting the PMP (time to pay suppliers) from the PMM obtained.
PMMF = PMM - PMP
So that it is better understood
PMMF = PMA + PMF + PMV + PMC-PMP
Important considerations regarding PMM
Any company must be clear that it is convenient to increase the rotation of each of the phases, thus reducing the average maturation period.
Well, the higher the speed, the shorter the average period will give and at the same time it will be worth allocating fewer resources, that is, less financing per short cycle.
To operate in this way, the company must implement a series of policies or techniques in the areas of purchase, production, sales, and collection:
- Regarding purchases: Obtain better financing in the purchase of raw materials, and reduce their stock.
- Regarding production: Make investment in machinery, technology, increase productivity incentives, improve task planning.
- Regarding sales: Establish incentives to attract more customers, such as discounts, advertising, promotions.
- Regarding collection: It consists of ideas or tactics that improve collection management or speed up payment for part of the clients, for example, discount for prompt payment, any practice that improves the management of payment.
In addition, there are a wide variety of options and techniques to add depending on the business and the company's strategies. It is worth noting that the PMM should not be viewed as an absolute value, it is clearly a instrument that allows stipulating the predisposition of the business and facilitates capturing the problems of liquidity.
There are few companies that can achieve a negative PMM, that is, they generally charge in advance, that is Before paying, perhaps optimizing times, many companies could opt for certain advantages financial
If the company takes all of the above into consideration and implements good politics, you can achieve:
- The increase in your productivity.
- Higher cost effectiveness in business.
- Speed in the amortization process.
- Transformation and improvements in the fixed structure.
- General growth in the company.
- Increase in own resources.
