Turnover of receivables

Short-term debt is an indispensable attribute of entrepreneurial activity. Quite often, customers have problems with the availability of liquid cash, and the goods have to be sold on credit. In addition, the provision of credit is usually a kind of bonus that attracts buyers.

Thus, the presence of receivables is quite common for the company. However, it must be at a controlled level, otherwise the company will simply provide free loans to its customers, and also experience a deficit in its own cash. That is why such indicator as the turnover of accounts receivable is rather important. His analysis reveals whether the company is abusing the issuance of commodity loans, and also how effective is its credit policy.

The turnover of receivables is fairly simple. To calculate the ratio, you need to divide the sales volume by the average receivable of your enterprise for the year. This indicator will show you what percentage of the money that should have come to your account for the goods delivered or services rendered was issued in the form of a commodity loan to the customers of the enterprise.

Too low turnover of receivables is dangerous for two reasons. First, so you part with your own capital, which could be used for other needs. Do not forget about the time value of money. Funds that do not generate profits, as in the case of commodity loans, indicate lost profits, especially if the amount of receivables is large. You could use them for enterprise development or simply put in a bank at a percentage.

In addition, funds frozen due to the presence of receivables could be used by enterprises for their own needs. Instead, the company sometimes has to borrow, and therefore pay the appropriate interest to financial institutions, which directly indicates that the receivables are incurred by the enterprise.

In addition, the sale of goods on credit is fraught with the loss of funds due to debt cancellation. The reasons can be very different: from bankruptcy of the enterprise to an elementary refusal to pay. Similar problem debts are united by the article "doubtful accounts receivable", according to which the write-offs occur regularly. Of course, the more loans you give and the longer the time, the greater the risk that you will not be enough to check your debtor and provide a loan to a dubious company.

Thus, it is quite obvious that the turnover of receivables should be maximized. If you do not want to lose customers, unsatisfied with the obligation to pay for a product or service at once, then you can enter the minimum purchase amount below which the loan is not issued. In addition to reducing the total number of debtors, you will also create an additional incentive for your buyer to carry out bulk purchases. In addition, do not forget that it is buyers who purchase small amounts, usually overdue payments.

Decrease in accounts receivable can also be carried out, reducing the maximum period for which a commodity loan is issued. As a rule, customers pay on the very last day, so it makes no sense to specify a payment period of 1 to 6 months. Two months will look much better. And do not forget that you must carefully monitor each debtor and work with everyone individually - only then you will be able to maintain the state of your receivables at the optimum level.