result by the number.
It may be that abc amber csv converter customers are taking more time to pay their expenses, suggesting either that customer satisfaction is declining, that salespeople within the company are offering longer terms of payment to drive increased sales or that the company is allowing customers with poor credit.
In this respect, the ability to determine the average length of time that a companys outstanding balances are carried in receivables can in some cases tell a great deal about the nature of the companys cash flow.For example, if one were to track a companys receivables turnover ratio over time, it would say much more about the companys history with issuing and collecting on credit than a single value can.Comparing such companies with those that have a high proportion of credit sales also does not usually indicate much of importance.Additionally, too sharp of an increase in DSO can cause a company serious cash flow problems.If the company uses discounts, those discounts must be taken into consideration when calculate net accounts receivable.The lower the ratio is the longer receivables are being held and the risk to not be collected increases.
One important thing to consider is that companies will sometimes use total sales instead of net sales when calculating their ratio, which generally inflates the turnover ratio.
It may suggest that a company operates on a cash basis, for example.
A high DSO value may lead to cash flow problems because of the long duration between the time of a sale and the time the company receives payment.
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A popular variant of this ratio is to convert it into an average collection period in terms of days.
Receivables turnover ratio can be calculated by dividing the net value of credit sales during a given period by the average accounts receivable during the same period.
Interpreting 'Receivables Turnover Ratio'.Breaking down 'Receivables Turnover Ratio receivable turnover ratio is also often called accounts receivable turnover, the accounts receivable turnover ratio or the debtors turnover ratio.For more on DSO and how to lower it, read Understanding The Cash Conversion Cycle.It is also important to note that comparisons of different companies receivables turnover ratios should only be made when the companies are in same industry, and ideally when they have similar business models and revenue numbers as well.The formula for calculating days sales outstanding can be represented with the following formula: A low DSO value means that it takes a company fewer days to collect its accounts receivable.