Your accounts receivable to sales ratio establishes the portion of your business’ sales that are done on credit. Your ratio can help you evaluate the effectiveness of your policies and practices, and guide your day-to-day operations and investments. To calculate your A/R Sales ratio, divide your net accounts receivable by your net sales.
What is the difference between net sales and average accounts receivable?
where "Net Sales" is the total sales for a given period and "Average Accounts Receivable" is the average accounts receivable balance for the same period.
How long does a company take to pay receivables?
For Company A, customers on average take 31 days to pay their receivables. If the company had a 30-day payment policy for its customers, the average accounts receivable turnover shows that, on average, customers are paying one day late. A company could improve its turnover ratio by making changes to its collection process.
