The accounts receivable ratio serves two critical business purposes. Importance of Accounts Receivable Turnover Ratio So practicing diligence in accounts receivable revenues directly affects an organization’s bottom line. Although accounts receivable turnover ratios are largely contextual, as they vary depending on the industry, higher ratios usually make better impressions on potential investors or financial institutions that supply loans. Making sure your company collects the money it is owed is beneficial for both internal and external financial engagements. This would put businesses at risk of not receiving their hard-earned cash in a timely manner for the products or services that they provided, which could obviously lead to bigger financial problems. If a company’s receivables turnover goes unchecked and unmanaged for extended periods of time, it could mean that they are failing to regularly and accurately bill customers or remind them of money owed. This efficiency ratio takes an organization's receivable balances and receivable accounts into consideration to determine the state of its cash flow. Working toward and attaining financial security requires businesses to understand their accounts receivable turnover ratio.
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