The ratio also measures how many times a company’s receivables are converted to cash in a period. The receivables turnover ratio measures the efficiency with which a company collects on its receivables or the credit it extends to customers. A higher ratio, therefore, can mean: You receive payment for debts, which increases your cash flow and allows you to pay your business’s debts, like payroll, for example, more quickly. The general rule of thumb is that the higher the accounts receivable turnover rate the better.
Do you want a high or low accounts receivable turnover? What does a receivables turnover of 10 mean?Ī financial ratio that indicates the speed at which a company collects its accounts receivable, i.e: a ratio of 10 means that the company’s accounts receivable are turning over 10 times per year. Yet, the MGMA reports that better-performing practices show much lower percentages, typically in the range of 5 percent to 8 percent, depending on the specialty. What is a good percentage for accounts receivable?Īn acceptable performance indicator would be to have no more than 15 to 20 percent total accounts receivable in the greater than 90 days category. This ratio gives the business a solid idea of how efficiently it collects on debts owed toward credit it extended, with a lower number showing higher efficiency. What is average receivable turnover?Īccounts receivable turnover is described as a ratio of average accounts receivable for a period divided by the net credit sales for that same period. An industry average of 10 means Company X is lagging behind its peers, while an average ratio of 5.7 would indicate they’re ahead of the pack. What is a good accounts receivable turnover ratio?Īn AR turnover ratio of 7.8 has more analytical value if you can compare it to the average for your industry. 15 What is a good days in accounts receivable ratio?.14 What is a good collection percentage?.13 What is a reasonable percentage of my accounts receivable to be past due?.12 What is a possible reason for accounts receivable turnover to increase?.11 What does an increase in receivables turnover mean?.9 What is a good average collection period?.6 Do you want a high or low accounts receivable turnover?.5 What does a receivables turnover of 10 mean?.4 What is a good percentage for accounts receivable?.3 Is high accounts receivable turnover ratio good?.1 What is a good accounts receivable turnover ratio?.