![]() A higher ratio means that the company is successful in collecting receivables for the entire year. Meanwhile, to get Average Receivables, we must use the following formula:Īverage Receivables = (Early Period Receivables + End Period Receivables) divided by 2Īccounts Receivable Turnover Ratio is a ratio that measures the ability and efficiency of a company in collecting its receivables, the higher this ratio. The company’s accounts receivable turnover can describe the efficiency level of the company’s capital. The faster the accounts receivable turnover also indicates that the business capital will return faster. Higher the accounts receivable turnover value, the better. ![]() Ratio = Net Credit Sales divided by Average Receivables The The following is the Accounts Receivable Turnover Ratio: Accounts Receivable Turnover Read more: The best invoice example for payment collection The function of the accounts receivable turnover ratio is to determine the management of a company’s receivables in terms of its accounts receivable turnover rate, where accounts receivable turnover is the period for which working capital is tied to receivables. On the contrary, the smaller the value of the receivables, the shorter the time needed to pay them off, and the lower the term value will be. ![]() The greater the value of the receivables, the longer it will take for debtors to pay them off and make the term value even higher. The length of term that has been determined by the management of the company also depends on the amount of existing receivables. Your customers are required to pay for goods that have been purchased in terms of payment certain from 7 days, 15 days, 30 days, 45 days even up to 90 days. Accounts receivable is a sale that occurs on credit to your customer.
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