How Quickly Do Customers Pay You?
Watch your receivables turnover rate, and keep your business healthy.
The turnover rate is a measure of your receivables cycle – it starts when your customer purchases your product, and ends when your customer finally pays you. Everything that happens in-between is part of the collection process.
So how good are your collection efforts? And how quickly are you getting your cash from your customers?
Your turnover rate is dependent upon your industry, and the types of clients you have. If you deal with large corporate clients, then expect your turnover to be a lot slower (as corporations are notorious for putting a lot of red tape into their payment processes). If you are an industry where customers use you on a regular basis and/or you are considered a "critical vendor," then you should be getting payment a lot faster (since they wouldn't risk upsetting you).
This information is invaluable for helping you manage your cash flow. Without the knowledge of how cash flows into your business, you cannot adequately plan for the cash outflows. Nor will you be able to spot trouble areas ahead, where perhaps a short-term loan or line of credit will be needed.
As managerial accountants, we are constantly watching your receivables turnover rate, and looking for ways to accelerate it. Schedule a free consultation with us and let's chat!.