Here are some of them:Įvaluates a company's ability to collect payments: This ratio tells you if credit sales are greater than the average amount the company collects in receivables over a specific period.
There are many reasons to use this ratio.
Related: What Does a Cost Accountant Do? (With Skills and Salary) Why use this ratio? Dividing these two values provides you with this ratio. The average receivables value is the average amount the receivables account collects in the same period. In the formula, the net credit sales value represents the total amount of credit sales the company makes over a specific period. Receivables turnover ratio = net sales on credit / average receivables To find receivables turnover, apply the formula: This accounting metric is also an important indicator of how effectively companies manage customer credit accounts, as the ratio provides insight into whether companies extend too much credit. If the company allows customers to make purchases on credit, this ratio is an effective metric for evaluating how efficiently the company collects extended credit and short-term payments. The receivables turnover ratio measures a business's ability to collect payments its customers owe for products or services.
Recievables turnover ratio formula how to#
In this article, we discuss what this ratio is, describe why you may use it, explore how to calculate it and discover what it can tell you. Learning about this ratio may help you understand how your team's ability to collect payments on time compares to others in the market and industry. There are a number of ways to track this metric, including the receivables turnover ratio. The ability to collect payments on time is an important metric to track for businesses.
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