What Is A Good Accounts Receivable Turnover Ratio and How to Calculate It?
Are you tired of waiting for your clients to pay up? As a construction business owner, managing your accounts receivable (AR) can be a constant headache. You want to ensure that you are collecting payments on time, but it can be challenging to determine if you are doing it efficiently. That is where your accounts receivable turnover ratio (ART) comes in.
In this blog post, we will cover what ART is, how to calculate it, and what a good ratio looks like. But that's not all—we will also dive into the Collection Effectiveness Index (CEI) and explain how it differs from ART. And if you're looking to supercharge your AR turnover ratio, we've got three game-changing ways an automated workflow can help. Trust us, you won't want to miss this!
Table of Content:
ART vs. CEI: Which One Tells You How Efficiently You're Collecting Your Money?
How to Calculate Accounts Receivables Turnover (Step-by-Step)
What is Accounts Receivable Turnover?
In the construction industry, contractors usually provide services before getting paid. They send invoices and give clients time to pay, making cash flow management tricky. To keep track of the money owed, we use "Accounts Receivable."
We use a ratio called Accounts Receivable Turnover (ART) to see how quickly clients pay. The higher the ART, the faster the business gets paid. This helps credit managers see if their credit policy and collection efforts work well.
Think of it like this: if you lend your friend some money, you want them to pay you back as soon as possible. The ART ratio helps businesses see how quickly they're getting paid, so they can make sure they're not waiting too long for their money.
What Is a Good Accounts Receivable Turnover Ratio?
When it comes to collecting debts, a high accounts receivable turnover ratio is like hitting the jackpot. It means you're doing a great job of getting your money back. But what's considered a "good" ART ratio can vary depending on your business and industry.