![]() Ensuring it falls within the standards determined by your company’s credit policies can also help you maintain a healthy cash flow and preserve positive relationships with your clients. It’s essential when preparing an accurate income statement and balance sheet forecast. Its complement in AP is known as the accounts payable turnover ratio.Ī well-optimized accounts receivable turnover ratio is an important part of bookkeeping. It is a numeric expression of the average collection period for outstanding credit sales. In AR, the accounts receivable turnover ratio is used to establish and improve the efficiency of a company’s revenue collection process over a given time period. Whereas its financial sibling, accounts payable (AP), is concerned with securing goods and services with maximum efficiency and minimum needless expense, the accounts receivable department tracks, manages, and collects money owed to your business while also managing credit extended to your clients.īoth AP and AR use a variety of metrics and activity ratios (also called efficiency ratios) to measure performance and efficiency in order to lower costs and provide greater value to the organizations they serve. What is Accounts Receivable Turnover Ratio? With a thorough understanding of its function, you can refine this ratio to ensure your company is being paid in a timely fashion, managing credit effectively, and has the working capital it needs to fund innovation, invest in growth, and cover unexpected expenses. One of the most commonly used metrics for determining the operatiodiginal efficiency and overall effectiveness of your company’s accounts receivable performance is the accounts receivable turnover ratio. Through the use of financial ratios and performance metrics, both large and small businesses can measure and improve accounts receivable performance over time. A healthy balance sheet begins with effective and efficient financial processes-particularly in accounts receivable (AR), where revenue is collected to provide the assets that support operations and organizational goals for competitive performance. Process improvement is an essential part of maintaining a successful business, and few areas offer more potential for increasing value than accounting. ![]()
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