Accelerating the account receivable or A/R is one of two vital ways to improve the cash flow. You can use this strategy if your business sells to other businesses and extends trade credit. Specifically, the speedier collection of A/R will benefit your business through some ways. First of all, it works by reducing the amount of necessary working capital binds to A/R and converting it to cash. Secondly, it will be able to lessen the overall risk of losses to your business as a result of customer bankruptcy. Thirdly, this strategy will show to the creditors and lenders that you apply a ‘business best practice.’ Lastly, it is also ‘training’ your customers to pay on time.
Speaking of A/R collection will lead you to a discussion about the days of A/R turnover. The days of A/R turnover is the average number of days it takes to collect your company’s A/R. An average outstanding number of A/R from invoice date can be recognized through particular accounting software.
However, if this software doesn’t give you the expected number, there is another helpful way to calculate your outstanding A/R turnover by using the certain formula: