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If your ratio is too low, it may indicate that your credit policy is too lenient.
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If that’s the case, this is a good opportunity to revisit your collection policies and collect invoices past due or late payments. A low ratio, or a declining ratio, can indicate a large number of outstanding receivables.
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An average accounts receivable turnover ratio of 12 means that your company collects its receivables 12 times per year or every 30 days.Ī higher accounts receivable turnover ratio indicates that your company collects funds from customers more often throughout the year. Your efficiency ratio is the average number of times that your company collects accounts receivable throughout the year. The accounts receivable turnover ratio, or debtor’s turnover ratio, measures how efficiently a company collects revenue. What is the accounts receivable turnover ratio? Tracking this ratio is a bookkeeping staple. Knowing where your business falls on this financial ratio allows you to spot and predict cash flow trends before it’s too late. Knowing how to calculate the accounts receivable turnover ratio formula can help you avoid negative cash flow surprises. But nearly half of them claim those cash flow challenges came as a surprise. And more than half of them cite outstanding receivable balances as their biggest cash flow pain point. 80% of small business owners feel stressed about cash flow, according to the 2019 QuickBooks Cash Flow Survey.