Accounts receivable are monies owed to your business for goods or services delivered to a customer, but not yet paid for. Successful businesses collect money that is owed to them in a timely and efficient manner. Having too much money tied up in receivables means you're not collecting the cash to pay for the goods or services you've provided. Not extending credit may impact sales. The 'Receivables Turnover Ratio' measures a businesses effectiveness in extending credit and collecting debt. The higher the ratio, the more effective the business is in dealing with its receivables. The accounts receivable to sales ratio looks at the amount you have tied up in receivables in comparison to your same period sales. The Average Collection Period shows how long, on average, it takes for you to collect your debts.
