Top 3 Ways to Improve Your Accounts Receivable Turnover Ratio

One of the best ways you can gauge the performance of your accounts receivable management strategies is by calculating your accounts receivable turnover (ART) ratio.  ART helps measure and describe the efficiency of a company in collecting their credit sales. The accounts receivable turnover ratio is a good indicator of whether or not your credit and collections processes and terms are benefiting for your company. Generally a high value is an indication that your accounts receivable management strategies are working, a low value may indicate inefficiencies in your collections.  Different industries have different average ratios, so be sure you are comparing yours against other companies in your industry to see how you measure up. There are a few things you can do to improve your ART including the following:

Here are a few accounts receivable management strategies you can try to get paid faster and improve your ART ratio.

Invoice promptly. The faster your customers get their invoice, the longer they have to pay it.

Continuous communications. After sending the invoice, follow up with a phone call. Did they receive the invoice? Do they have any questions or concerns?  Be sure to contact the customer a week or so before the due date if they still have not paid, asking them when you can expect payment. Absolutely contact them as soon as they are late on their payment and consistently after that until you receive payment or pass it along to a collections service.

Record communications. Be sure to always put on record the name of the person you spoke to, if they made payment promises, if they had questions, the date you communicated with them, did you call or email?  Etc.

There are many things you can do to improve your accounts receivable turnover ratio, but these are by far the most effective ways to do it. Of course these are also the most time consuming tasks and usually the ones that fall to the wayside because collectors must do these things manually and they simply don’t have enough hours in the day. Through accounts receivable management automation and the use of a system like Anytime Collect, you can give your employees the tools they need to:

  • View all pertinent information for an account quickly and easily in one place
  • Document A/R communications.
  • Track inbound and outbound correspondence.
  • Automate email communications so they can focus on their larger accounts and other job responsibilities.
  • Store all A/R invoices, collection letters, contracts, and other related documents.
  • Email, make phone calls, manages disputes, log expected payments, and set follow-up activities in one single screen so they no longer have to waste countless hours tracking down information and moving from one screen to another.
  • And more

According to Paystream Advisors, Companies who stick with traditional collections techniques spend about 15% of their time preparing for calls and 15% of prioritizing their actions. That is 30% of their time spent on activities other than soliciting customers for payment! On the other side of things, those who use automated accounts receivable spend only 12% of their time on those activities

Paystream also noted that companies who adopt automated AR can expect to recognizethe following benefits:

  • 10 to 20 percent in DSO
  • 25 percent in past due receivables
  • 15 to 25 percent in bad debt reserves

For more helpful hints on improving your accounts receivable, download this white paper

 accounts receivable management

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