![]() ![]() The accounts receivable turnover ratio is an important metric - but it’s still hypothetical and leaves room for assumptions. It could also be due to lenient credit policies where the company is over-extending credit to customers with more risk of default. It indicates that customers are defaulting and the company needs to optimize collection processes. On the other hand, a restrictive credit policy might drive away potential customers or limit business growth, negatively impacting sales.Ī low accounts receivable turnover ratio or a decrease in accounts receivable turnover ratio suggests that a company lacks efficient collection strategies to collect receivables on time. A benefit of having a conservative credit policy is that businesses effectively avoid unnecessary loss of revenue by not extending credit to customers with poor credit history. It could also signify that a company has a pretty strict credit policy while offering sales on credit to its customers.
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