Making sure your company collects the money it is owed is beneficial for both internal and external financial engagements. This would put businesses at risk of not receiving their hard-earned cash in a timely manner for the products or services that they provided, which could obviously lead to bigger financial problems. ![]() If a company’s receivables turnover goes unchecked and unmanaged for extended periods of time, it could mean that they are failing to regularly and accurately bill customers or remind them of money owed. This efficiency ratio takes an organization's receivable balances and receivable accounts into consideration to determine the state of its cash flow. Working toward and attaining financial security requires businesses to understand their accounts receivable turnover ratio. ![]() You can improve your ratio by being more effective in your billing efforts and improving your cash flow.Īccounts Receivable Turnover Ratio Explained.As noted above, business type and industry can impact your AR ratio, so the score viewed on its own may not reflect the quality of your customer base or effectiveness of your retention efforts - it needs to be viewed in context.So it is good practice to compare yourself with others in your industry. Turnover ratio needs to be taken in context with the business type - companies with high AR turnover are a result of the processes in place to secure payment - for example, retail, grocery stores, etc. ![]() In some cases, the business owner may offer terms that are too generous or may be at the mercy of companies that require a longer than 30 day payment cycle.
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