What if you had a crystal ball and could see the future of your business finances so you could make adjustments today for a more profitable tomorrow? It would be great right?
Financial ratio formulas are accountant’s crystal balls. These formula calculations look deep inside your company’s financials to reveal vital information. This uncovers forthcoming issues, long before they harm your company cash flow, so you can take preventative actions.
The accounts receivable turnover ratio is one of my favorites. By using it I can quickly see if my customers are paying on time and if they are not and what actions I can take to ensure a better financial future for my company.
Come along as we dive deep into accounts receivable calculators. Please don’t be intimidated. I will make it easy so you can calculate your ratio in minutes with these free online calculators.
Definition: What are the accounts receivable ratio and what can it tell me about my business finances?
This number, called a financial ratio, is calculated with a specific formula (see below) that will tell you if you are collecting your customer payments (and other debts) at a good or poor rate. If your rate is poor, it will indicate operations that you need to improve in your firms such as your collection process, bad credit policies, and too lenient credit account approvals.
Knowing this number is vital because it will give you foresight into looming money problems so you can amend them now, long before they result in drastic negative results. Being proactive and calculating this important financial ratio you can prevent negative cash flow – which is the #1 reason small businesses fail.
The official accounting definition:
“Your accounts receivable turnover ratio, also known as the debtor’s turnover ratio is an important financial metric of the is the number of times per year that your company collects its average accounts receivable. This efficiency ratio measures how efficiently your business is collecting revenue and thus using your assets wisely.”
What does the receivable turnover ratio mean? Why is it important?
A higher accounts receivable turnover ratio shows that your firm’s collection is at an efficient rate and that the majority of your credit customers are paying their bills on time.
A lower accounts receivable turnover ratio shows that your firm has a poor debt collection system, bad credit policies and customers that are slow payers and not creditworthy.
Now that you know what the accounts receivable formula is, what it means and why it is important to your business success easily calculate yours with these financial ratio calculators.
Accounts Receivable Turnover Calculators
Receivable Turnover Calculator – Finance Formulas
This simple calculator allows you to input your revenues and average accounts receivable and instantly shows you your ratio number. I like its accuracy since it goes up to 2 decimal points.
To get your average accounts receivable to take your month-end accounts receivable for the year and add together and divide by 12. If your business is seasonal use 3 months of average AR instead.
Your accounts receivable turnover ratio number (mine is 8.33 – see below) is divided by 365 days in the year. This means that my average collection period is 45 days. This is substantially longer than my stated bill due date of 30 days. Now I can see that I need to improve my credit collection process.
AR Turnover Ratio Calculator – CSG Network
Another option to simply calculate your AR ratio. The result goes to ten decimal points.
Receivable Turnover Ratio Calculator – Mini Web Tools
The Receivables Turnover Ratio Calculator is used to calculate the receivables turnover ratio. Enter net credit sales for a period and average net receivables for the same period, then click the “Calculate” button.
>>To further analyze your collection period use this calculator to determine your average collection period
Average Collection Period is the approximate amount of time that it takes for a business to receive payments owed, in terms of receivables, from its customers and clients. Companies use the average collection period to assess the effectiveness of a company’s credit and collection policies. It should not greatly exceed the credit term period (i.e. the time allowed for payment). The average collection period is a variant of the receivables turnover ratio.
Financial Ratio Calculators – Dinky Town
This is a more comprehensive calculators that will generate multiple ratios including AR and as ratios of profitability, liquidity and solvency.
Receivable Turnover Ratio Calculator – A Systems
This easy to use calculator focuses exclusively on net credit sales to quickly calculator your AR turnover ratio.
Accounts Receivable Turnover Calculator – Double Entry Bookkeeping
This calculator uses an Excel spreadsheet (which you can download free) to determine the number of times your accounts receivable was converted into cash. A low accounts receivable turnover can indicate inefficiency in collecting accounts receivable from customers, leading to bad debt write-offs for the business.
Take time today to quickly calculate your accounts receivable ratio using one of these calculators mentioned to looking deeply into your company’s financial health to predict your financial future.
If you find inadequacies now is the time to improve your credit policies and collection systems. Here are some helpful tips in this infographic below. Go forth and prosper.
Boost Your Account Receivable Turnover – Get Customer Payments Faster
Courtesy of Cogneesol
Check out my guide on how to start your business right with tons of useful tips I learned by successfully starting, building, and selling multiple companies.