The result of dividing the annual sales on credit by the average or final balance of accounts receivable that need to be collected. Dividing 365 by the turnover rate gives us the company’s average collection period. This metric can help companies manage their cash flow and identify potential issues with customer payment behavior. A high turnover rate indicates that the company is collecting its accounts receivable quickly, while a low turnover rate may indicate that the company is having difficulty collecting its accounts receivable.
« Back to Glossary IndexAccounts receivable turnover
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