![]() ![]() If this is the case, you may need to hire additional collection staff or analyze why your receivables turnover ratio worsened. Tracking your receivables can reveal trends if your turnover has slowed down. On the other hand, a low ratio may imply that your company has poor management, gives credit too easily, has a riskier customer base or spends too much on operating expenses. If your company is too conservative with its credit management, you may lose customers to competitors or experience a quick drop in sales during a slow economic period. For more tips on how to optimize your accounts receivable, download your free A/R Checklist below. Maintaining a good ratio track record also makes you and your company more attractive to lenders, so you can raise more capital to expand your business or save for a rainy day. Before joining Versapay, Nicole held various marketing roles in SaaS, financial services, and higher ed. She is passionate about telling compelling stories that drive real-world value for businesses and is a staunch supporter of the Oxford comma. For one, because AR turnover ratio represents an average, any customers that either pay uncommonly early or uncommonly late can skew the result. Because AR departments historically experience a high degree of manual work, streamlining collections processes is the easiest way to improve receivable turnover. ![]() Since sales returns and sales allowances are outflows of cash, both are subtracted from total credit sales. The next step is to calculate the average accounts receivable, which is $22,500. This provides a more meaningful analysis of performance rather than an isolated number.
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