Related: 18 Examples of Accounts Receivable Goals and Objectives What does the accounts receivable turnover ratio include? If the company's account receivable turnover ratio decreases over time, that might be a sign that the accounts receivable process at the company is becoming less effective since it takes longer for customers to pay for their purchases. Companies need revenue from credit purchases to operate, so it's important to collect accounts receivables at a steady pace. This ratio shows how efficient a company's accounts receivables department is at collecting unpaid money. Related: Q&A: What Is Accounts Receivable and How Does It Work? Why is the account receivable turnover ratio important? Accounts receivable is the amount of money that customers owe a company for products or services rendered.įor example, if a company had $50,000 of average receivables during a year and then collected $150,000 of receivables during the same timeframe, the business collected its average accounts receivables during that year. What is the accounts receivable turnover ratio?Īccounts receivable turnover is an efficiency ratio that measures the number of times a company can collect its average accounts receivables during a specific period, usually a year. In this article, we define the accounts receivable turnover ratio, explain the associated formula, list the steps for calculating accounts receivable turnover and provide you with an example to help you better understand the calculation. Learning more about this valuable metric can help you expand your understanding of financial management. If you work in the accounts receivable department of a company, you might use the accounts receivable turnover ratio to measure how effectively the department collects outstanding debt from customers who made purchases using credit. Professionals use many metrics to evaluate how efficient their business or department is at collecting revenue.
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