What is a good AR-to-sales ratio?

A good AR to sales ratio typically falls between 10-20%, though this percentage varies across industries and business models. Manufacturing companies often maintain ratios around 15%, while retail businesses might target closer to 10%. Your optimal ratio depends on your industry standards, payment terms, customer base composition, and seasonal business fluctuations.

What does the accounts receivable turnover rate indicate?

The accounts receivable turnover rate measures how many times a company collects its average accounts receivable balance during a year. For example, a turnover rate of 12 means a company collects its average receivables balance once every month. Higher rates indicate efficient collection processes and effective credit policies, while lower rates might signal collection challenges or overly lenient payment terms.

How do you calculate the accounts receivable turnover ratio?

The accounts receivable turnover ratio is calculated by dividing net credit sales by the average accounts receivable for a specific period. The formula provides insights into how effectively a company manages its credit and collections process. A simple way to calculate average accounts receivable is to add the beginning and ending receivable balances for the period and divide by two.

How can companies improve their accounts receivable turnover?

Companies can improve their accounts receivable turnover by implementing automated invoicing systems and offering multiple payment options to customers. Setting clear payment terms, following up promptly on overdue accounts, and analyzing collection data to identify payment trends help optimize the collection process. Well-designed credit policies combined with efficient collection practices lead to faster customer payments and improved cash flow.

How can AR automation provide better analytics for the FP&A team?

AR automation delivers better analytics by consolidating all AR data (invoicing, payments, collections) into a single, real-time system. This eliminates unreliable manual processes and data silos, creating one source of truth. This clean, unified data allows finance teams to spot payment patterns, forecast cash flow trends, and refine collection strategies. For an FP&A team, this means moving from estimates to data-driven insights: they gain real-time visibility into customer behavior, enabling highly accurate cash flow forecasts and better strategic planning.

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The top 10 accounts receivable strategies for driving financial growth

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DDO meaning and best practices: Your guide to days deduction outstanding

Days Deduction Outstanding (DDO) is a critical accounts receivable metric that measures how long it takes your company to resolve invoice disputes and deductions. As a finance leader, understanding and managing DDO directly impacts your cash flow, working capital, and bottom-line performance.

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Remote deposits: Top 3 best practices for AR teams

Did you know that remote deposit acceptance significantly slows down the cash application process? It’s a big problem for AR teams because it’s time-consuming. Learn how using a holistic approach can make things easier.