![]() A high ratio also indicates that the company has a generally strong customer base, as customers tend to pay their invoices on time.Ī high receivable turnover could also mean your company enforces strict credit policies. It tells you that your collections team is effectively following up with customers about overdue payments. What a high accounts receivable turnover ratio meansĪ high AR turnover ratio generally implies that the company is collecting its debts efficiently and is in a good financial position. There are also factors that could skew the meaning of a high or low AR turnover ratio, which we’ll cover when discussing the limitations of accounts receivable turnover ratio as a key performance indicator. There's no standard number that distinguishes a “good” AR turnover ratio from a “bad” one, as receivables turnover can vary greatly based on the kind of business you have. What is a good accounts receivable turnover ratio?Ī high accounts receivable turnover ratio is generally preferable as it means you’re collecting your debts more efficiently. But, because collections can vary significantly by business type, it’s always important to look at your turnover ratio in the context of your industry and how it trends over time. ![]() This means that on average, it takes their customers about 48 days to pay their invoices (365 ÷ 7.5 = 48).Ĥ5 days and below is what’s considered ideal for your average collection period.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |