Accounts receivable turnover ratio

• Overall


  Shows the efficiency of a business in collecting its debts

  A long period, especially if it is increasing, could indicate poor credit control, poor credit policy, liquidity problems of debtors and potential cash flow problems of the owners

  It shows how long it takes to turn over accounts receivable and how long it takes to collect money from its creditors

  The suggested level for this ratio is around 30 days because that’s the length of many businesses credit period

  Most businesses would like a figure that is not more than 10 days more than their standard credit period
• Strategies


  To improve this result = need to be careful in granting credit and carefully monitoring their accounts. Discounts for early payment and interest charges for late payments encourage on time payments. Using outside credit facilities may reduce the return to the business as costs are incurred but there will be a reduction in credit risk. Factoring can be used if a cash problem is serious