![]() To keep the accounts receivable turnover under control, it is necessary to develop and implement a complex strategy of the accounts receivable management. Source: Almanac of Business and Industrial Financial Ratios Resolving the problems with the accounts receivable turnover exceeding the normative range: Religious, Grantmaking, Civic and Professional Organizations Values range for different industries looks like below: IndicatorĮlectric Power Generation, Transmission and Distribution Normative values for the accounts receivable turnover (days) are highly dependable on the industry. Generally, the increase of the accounts receivable turnover (days) indicates the necessity of a more detailed research on the accounts receivable credit quality with its division by segments, according to the dates due (up to 30 days, 30 to 60 days, 60 to 90 days, etc.). The increase of the accounts receivable turnover (days) ratio may have following reasons: deterioration of the buyers' payment discipline activation of providing consumer loans for goods and services mistakes during the definition of credit policies, which led to the provision of loans to unreliable debtors, etc. To make a straightforward conclusion it is necessary to conduct the analysis of the accounts receivable quality, to measure the economic efficiency of the consumer loans policy (to compare the profit increase, caused by the implementation of the consumer loans policy, with the volume of interest paid on the borrowings used for financing the accounts receivable). It is difficult to make a categorical statement on whether this is good for an analyzed company or not - if consumer loans are an important part of the company's marketing strategy the accounts receivable will grow, but this will lead to an increase in the sales volume. ![]() Decreasing accounts receivable turnover trend witnesses the fact that the firm's clients divert financial resources of the company for a less period on average. It is also important to analyze the dynamics of this ratio. It is reasonable to choose similar-sized companies for such comparison, for example, those that possess similar amounts of assets. For instance, if the company has set 15 days as a maximum term for consumer loans, the accounts receivable turnover must not exceed this value. For more precise estimation, the accounts receivable turnover values should be compared with main competitors. ![]() Using this ratio the analyst can measure the accounts receivable management efficiency on a firm. The ratio reflects the payment history of the firm's clients. In other words, this indicator measures the efficiency of the firm's collaboration with clients, and it shows how long on average the company's clients pay their bills. Accounts Receivable Turnover (Days) (Average Collection Period) – an activity ratio measuring how many days per year averagely needed by a company to collect its receivables.
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