![]() If you are having cash flow constraints but have strong Accounts Receivable, then you can turn those to your advantage with Accounts Receivable Financing or an Asset-Based Line of Credit. Whether utilizing Accounts Receivable Financing, an Asset-Based Line of Credit or traditional Factoring, you can leverage your Accounts Receivable to improve your cash flow and the overall health of your business these products are all aimed at exactly the problem presented by a low/decreasing A/R Turnover. If your cash flow is sufficient to qualify for a bank line of credit, you can use those funds to help supplement any cash flow issues. Or you may not want to risk losing a customer by being more demanding in your collections management. ![]() Perhaps the only way to score that next big contract is to offer terms that let your customer take longer to pay. However, sometimes change isn’t possible or there’s just no more room for improvement. If it’s not possible to require shorter credit terms, then a better structured collections practice may be the solution. ![]() Many companies will offer discounts to customers to pay early. Cash flow is the lifeblood of every growing business so it’s important to manage Accounts Receivable Turnover. Many small business owners will think business is booming as sales increase, but will be puzzled when they are constantly running out of cash each month. ![]() Growing sales at the expense of collecting Accounts Receivable is a dangerous path to follow. However, if your A/R turn is decreasing, it may be a sign that changes need to be made or your cash flow could suffer dramatically. If your net credit sales are increasing, that’s widely considered a good thing that shows your company is growing. You can track A/R Turn from year to year, quarter to quarter, month to month, etc like any financial metric, the more you review and analyze it, the more effective you will be in managing your cash flow. Generally an increase in A/R Turn is a good thing however, a decreasing A/R Turn – or one that is low to begin with – is a big red flag for cash flow issues.Īccounts Receivable Turnover is most useful when it is looked at as an ongoing trend, rather than a snapshot of one particular period. Conversely, if you do not have an active collections program, then payments from customers may be delayed resulting in a lower A/R Turn. The faster you collect your Accounts Receivable, the higher your turn will be. All else equal, the longer credit terms you give your customer, the lower your A/R Turn will be. you may extend a customer 45 day terms rather than 30 day terms). ![]()
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