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Accounts Receivable Analysis in 3 easy steps

An accurate accounts receivable or AR evaluation starts with a thorough accounts receivable analysis. This receivable analysis will quickly measure the financial health of your company and your accounts receivable. So what is involved with an accounts receivable analysis?

The three simple formulas below for your company’s Balance Sheet will reveal the negative or positive trending of your financial performance and the true value of your accounts receivable. It should be kept in mind that there are numerous other formulas for further accounts receivable analysis.

How to calculate how long it takes to collect your Accounts Receivable

This analysis will tell you how many days, on average, it takes for you to collect your accounts receivable.

A number that is close to the number of days within your credit terms: (i.e. 7 days, Net 30 days, etc.) is considered to be exceptional, but numbers in excess of fifteen days past your due date (15 days past 30 day due date = 45) should be cause for alarm! The accounts that are 90 days plus delinquent can no longer be used as security against a business loan from a financial institution. The formula is simple to calculate the days outstanding or DSO on your accounts receivable.

Gross Receivable ÷ Annual Net Sales/365

Accounts Receivable Turnover

This analysis will tell you the liquidity of your company’s receivables.

NET Sales ÷ Average Gross Accounts Receivable

A lower the number of days the better. However, a higher number indicates reduced cash flow and potential increases to the cost of borrowing. This formula is a warning sign in accounts receivable analysis.

Accounts Receivable Turnover in Days

This analysis will give you an indicator of how quickly you can convert your accounts receivable into cash.

Average Gross Accounts Receivable ÷ Annual Net Sales/365

A number close to your credit terms is excellent. A higher number will indicate areas that need improvement in managing your accounts receivable.

Consider AAB

AAB has been in business for over 40 years and we would be pleased to show you other ways to improve the return on your accounts receivable. Give us a call or schedule a free consultation on accounts receivable analysis.
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