One of the efficiency ratios, the Receivable Turnover Ratio is a metric that measures how often a business’s accounts receivable is collected (on average) over a given period. It can also help your business in managing your business’s credit effectively. With proper knowledge about how it works, you can design or improve your current policies and practices to ensure that your business collects payments on time. In this article, we will learn about the Receivable Turnover Ratio, what it tells you about your business, and how to compute for it. One such ratio is the Receivable Turnover Ratio. Having strong credit and collection policies help a business in dealing with its credit sales and the corresponding accounts receivable.Īlso, there are many tools that can help a business in managing its accounts receivable such as financial ratios. This will certainly affect the business’s liquidity.Īnother, there is the risk of not being able to collect any cash on the sale at all.īusinesses must do what they can to avoid such a thing from happening. One, when a business makes a credit sale, it won’t be receiving cash at the time of sale but rather at a later time. There are concerns when it comes to credit sales though. This increases the potential customer base that the businesses can reach. Oftentimes, businesses offer sales on credit in an effort to increase their total sales.īy offering sales on credit, businesses can accommodate customers who don’t always have cash readily available on hand. One of the processes that you can improve upon when it comes to your business is the process of how it deals with credit extended to customers – a.k.a accounts receivable.Īccounts receivable is linked with credit sales or sales on credit. It shows promise to your stakeholders that you care about your business enough to have it evolve as it continues to operate. Continuous improvement of your business and its processes is essential for its continued existence and eventual success.
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