1/9/2023 0 Comments Receivable turnover ratioNow that the technical stuff is out of the way, let’s get into the important bits. How To Improve Your Accounts Receivable Turnover? It’s important to keep both measurement periods the same. You can calculate your Average Accounts Receivable by adding your accounts receivable amount from the beginning of the period to your accounts receivable amount at the end of the period and dividing the result by two. Then calculate your average accounts receivable Your total credit sales for the accounting period being measured (monthly, quarterly, and annually), less any customer returns and refunds, is what makes up your Net Credit Sales amount. The mighty formula for calculating the accounts receivable turnover ratio is dividing your net credit sales by your average accounts receivable. Here’s how to do it: Calculating Accounts Receivable Turnover Ratio (ARTR) If it’s low, it’s a warning that you need to improve your collection processes or maybe that you need to find more dependable clients. The higher your ARTR, the more cash your business has available to pay for expenses and debts. The ARTR measures how effective your business is at converting its accounts receivable into money in the bank. What is the Accounts Receivable Turnover Ratio (ARTR)? After all, the money you earn can’t truly be counted as revenue until you’ve actually collected it from your clients. You should know how your accounts receivable is doing, just like how you would keep tabs on the state of someone close to you! This is important because it determines whether you have enough cash on hand to pay the bills, source more products or invest in areas of your business to grow. As a small business owner, you and your business’s accounts receivable should be best friends.
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