Accounts receivables turnover rate is the amount of times in a year that a company collects its monthly accounts receivables. A high turnover rate indicates a mixed combination of an aggressive collection department and a more conservative account processing policy. Because businesses operate in a cash-flow economy, they are highly dependent on the ability of their cash flow to generate sales. When accounts receivables do not arrive in a timely manner, businesses can suffer serious consequences.
Accounts receivables, also called receivables or billings, represent the money that the company receives from a customer. When a customer makes a purchase, he pays the money to the business, which pays him an invoice for the purchase. The invoice is sent to the credit card company, which passes it on to the customer. Credit card companies will make adjustments to an account receivables balance if the account is delinquent.
A credit card company can adjust accounts receivables balances if the company does not pay in time, if there has been a late payment or other delinquency, or if the customer or his credit card company has filed a dispute against the firm, such as reporting too many late charges or non-payment of accounts receivables. Credit card companies have the right to charge interest on the unpaid balance, although they usually allow for a partial percentage point discount on balance transfers.
A business needs to maintain an effective account processing and collection system if it wants to keep up with the ever-changing economy. To maintain an efficient and effective credit processing and collection system, a company must have effective information systems. This means having the proper accounting software, such as Quickbooks, that makes it easy for employees to process payments and receive payments, and being able to send electronic receipts to customers and other businesses.
If accounts receivables are not received in a timely manner, the credit card company can initiate collections procedures that can result in legal action. This can be done by using a collection account, such as a bill collector or an IRS collection agency. A collection agency will call on a client's account and attempt to get the client to pay back the debt. If the client cannot afford to pay, the agency may go into court and try to obtain an order from a judge that the client pay the debt. or a portion of the debt.
In addition to the effects of an aggressive account processing and collection policy on a company's accounts receivables turnover rate, other factors will influence the rate. One of the most important factors is the size of the business. For small businesses, this is especially true since many small businesses will have less than one hundred accounts. Accountants are sometimes employed to help manage a small business.