The account is also termed as trade receivables or medical receivables for the medical service industry. Most companies are depending on this important asset at their disposal in the crafting of their strategies on receivable management in order to be assured that their cash flow projection would generate the needed cash from their accounts receivable to finance their operations. The best gauge to rate that a business has a good receivable management services is a high accounts receivable turn-over ratio.
This is a strategy of a receivable management system that was put in-place to safeguard the assets of the business. You need data on your projections of accounts receivable which are derived from estimated sales on account together with the dates of collecting them in order to prepare your cash flow. At those specific points in the cash flow, these must be converted into cash which will in turn flow back to operations to finance your inventories and operating expenses. The company’s day to day operations will ultimately suffer if your collection activities fail and that will force the firm to look for receivable exchanges or purchase receivable financing companies like bookkeeping Melbourne for help.
In case the firm’s receivables are not covered by insurance, the company could also use this data together with the list of its receivables to secure an asset based loan in order to finance its receivables to bridge its finances until it can recover from its present difficulties.It is then crucial that the one crafting the cash flow is using figures that are realistic and based on existing data if the business is already in operation. In order to arrive at the ratio of accounts receivable turn-over, get the total credit sales during the year and divide it by your average accounts receivable of the same period.
The task of receivable management covers the proper maintenance and recording of vital accounting records that must be kept and properly safeguarded. Let’s say if the total sales on credit for the year are $12,000 and your average accounts receivable is $1,000, then your accounts receivable turn-over is 12. This means that the company on the average has turned over its receivables by 12 times during the year.
The percentage you arrived at will now be gauged if it’s high or low when compared with the ratio of the previous period. A top rated percentage implies that the receivable performance management strategy is good, but a ratio that is lower is a sign that management should take a closer look at its credit and collecting activities. The ratio if it is higher is an evidence that the receivable performance program is implemented well while a lower percentage is a marching order to management to evaluate its accounts management efforts.Read More