The latter metric provides a broader view of how well a company utilizes its total assets to generate revenue. ![]() ![]() Sometimes, the accounts receivable turnover ratio is confused with the asset turnover ratio. has a higher accounts receivable ratio, which bodes well for its ability to maintain a healthy cash flow and responsibly expand its operations. Because of these practices, the company’s A/R balances tend to be much lower when compared to their credit sales. They assess their prospective clients’ creditworthiness, promptly issue invoices with clear payment instructions, and send reminders when due dates are approaching. But unlike Starfish Inc., they have established a robust set of policies and procedures for extending credit and collecting payments. is a competitor firm that also provides highly effective B2B software solutions. a lower accounts receivable turnover ratio, which can spell trouble in terms of their ability to meet their own financial obligations and grow their business.īy contrast, Starlight Inc. Overall, their A/R balances are high compared to their credit sales. Occasionally, their clients go out of business before they pay what is owed, resulting in mounting debt. They don’t conduct thorough credit checks on potential clients, and have allocated minimal resources to monitoring their accounts and following up on overdue invoices. is a B2B software company that delivers excellent products but lacks a streamlined credit and collections process. ![]() Here’s an example that illustrates how the accounts receivable turnover ratio works: This data can provide important insight into your company’s cashflow, client relations, and overall stability. The accounts receivable turnover ratio (or A/R turnover ratio) is a key financial metric that shows how quickly your business collects payments from its customers over a specified period. What Is the Accounts Receivable Turnover Ratio?
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