Receivables Management - Receivables Management A/R...

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Receivables Management A/R Turnover = (Sales) / (A/R balance) Improving A/R Turnover : One way is by entering into a factoring agreement with a finance company. Selling the receivables to a factor , which is then responsible for collecting them, decreases the turnover time. Instead, it simply collects payments (minus fees and financing costs) for its accounts receivable. The higher the turnover rate, the shorter the average collection period. The turnover increases when either sales (the numerator) increase, or receivable (the denominator) decrease. Average Collection Period = (# of days in year) / (A/R turnover) Collection periods are increased by (1) an increase in discounts taken, (2) a decrease in the amount of bad debts (doubtful accounts), and (3) a decrease in receivables balances (the investment in A/R). Accomplishing both higher sales and a lower receivables increases the turnover and results in a shorter collection period. Minimum savings per year to justify changes in collection procedures
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This note was uploaded on 02/01/2009 for the course ACTG 6610 taught by Professor Ward during the Spring '09 term at Middle Tennessee State University.

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Receivables Management - Receivables Management A/R...

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