# Controlling Your Business Cash Flow With Effective Accounts Receivables Turnover Ratios
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2020-10-13
Category: FINANCE
Category URL: https://financedigest.com/category/finance
Meta Title: Boost Sales with Efficient Accounts Payable Tracking
Meta Description: Learn how to calculate and improve your accounts payable ratio to drive business growth. Find out why this number is crucial for making informed decisions.
URL: https://financedigest.com/controlling-your-business-cash-flow-with-effective-accounts-receivables-turnover-ratioshtml

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As a business owner, your accounts payable is an important factor in determining the accounts receivables to sales ratio for your business. This ratio is based on the ratio between accounts receivables and sales revenue. As you can imagine, this is one of the most important numbers you will need to know. It is also the number that most business [owners](https://www.financedigest.com/the-top-5-demons-of-a-business-owner-and-how-to-overcome-them.html "The top 5 demons of a business owner and how to overcome them") forget to check when making business decisions.

Accounts receivables are money paid out by a customer to you because you have [made a sale](https://www.financedigest.com/meta-to-take-nearly-half-of-sales-made-by-its-metaverse-creators-as-fees.html "Meta to take nearly half of sales made by its metaverse creators as fees") to them. These include [cash payments made by customers in advance of purchase and payments made during the course of your business](https://www.financedigest.com/small-businesses-run-out-of-cash-before-they-run-out-of-potential.html "Small businesses run out of cash before they run out of potential") relationship with the customer. Examples of examples: assume that your annual credit sales are ten thousand, monthly account payments are ten thousand, and monthly account payments at the close of the [fiscal year](https://www.financedigest.com/impact-com-fiscal-year-h1-2021-1-5b-valuation-150m-in-funding-bigcommerce-integration-69-customer-growth.html "impact.com Fiscal Year H1 2021: .5B Valuation, 0M in Funding, BigCommerce Integration, 69% Customer Growth") are ten thousand. The average accounts receivables turnover is:

Ten thousand/(2,000 + 10,000) = 10.5%. You will find that this number tends to fluctuate from company to company based on a variety of factors. Some accounts receivables are paid on a month-to-month basis while others are paid on a semi-annual basis.

Monthly accounts payable will tend to be high when compared to total accounts payable. However, this amount can be decreased if you make some important changes in your accounting procedures that will improve the [cash flow of your business](https://www.financedigest.com/should-your-business-reconsider-invoice-financing-top-tips-on-why-reappraising-this-method-liberates-business-cash-flow.html "Should your business reconsider invoice financing? Top tips on why reappraising this method liberates business cash flow").

An [important change](https://www.financedigest.com/popcorn-containers-market-important-changes-in-industry-dynamics-during-2017-2027.html "Popcorn Containers Market  Important Changes in Industry Dynamics during 2017-2027") that can decrease the accounts payable amount is to track every transaction including invoicing transactions separately. This allows you to monitor every transaction in terms of the date, [time and amount of the payment](https://www.financedigest.com/adapting-payments-to-reassure-consumers-and-safeguard-profitability-during-times-of-uncertainty.html "Adapting payments to reassure consumers and safeguard profitability during times of uncertainty"). This makes it easier to track the [accounts receivables to sales](https://www.financedigest.com/flooded-battery-to-remain-top-choice-across-industries-accounting-for-49-0-of-lead-acid-battery-sales-in-2021-future-market-insights.html "Flooded Battery to Remain Top Choice across Industries, Accounting for 49.0% of Lead Acid Battery Sales in 2021: Future Market Insights") ratio.

Another way you can increase the accounts payable is to record a higher percentage of your [cash sales](https://www.financedigest.com/british-pensions-step-up-multi-billion-pound-asset-fire-sale-as-need-for-cash-soars.html "British pensions step up multi-billion-pound asset fire sale as need for cash soars") as accounts payable. There are several ways to record these transactions such as invoicing the [customer directly](https://www.financedigest.com/why-due-diligence-is-so-important-for-direct-debit-customers.html "Why due diligence is so important for Direct Debit customers") and then sending a receipt. or using direct deposit or a [bank transfer service](https://www.financedigest.com/major-myths-and-questions-holding-banking-and-financial-services-back-from-full-digital-id-adoption.html "Major myths and questions holding banking and financial services back from full digital ID adoption").

One of the most important things that you can do to [improve the accounts payable ratio is to track the customers](https://www.financedigest.com/how-can-financial-firms-improve-customer-service-after-the-pandemic.html "How Can Financial Firms Improve Customer Service after the Pandemic?") who have not yet started to make any payments. For example, assume that the bank has given your [business a twenty-five thousand dollar bill for a credit card](https://www.financedigest.com/more-businesses-investing-in-assets-like-virtual-credit-cards.html "More Businesses Investing In Assets Like Virtual Credit Cards") account. The first month the customer will not pay. If you do not take this account, you may never receive any payment at all. If you do not make sure that your customers do not have open accounts, then this account holder could be a [credit card holder who does not have a credit line](https://www.financedigest.com/austria-grants-credit-line-to-vienna-utility-squeezed-by-power-price-surge.html "Austria grants credit line to Vienna utility squeezed by power price surge").

Customers who have not yet made any [payments](https://www.financedigest.com/how-payment-institutions-can-leverage-data-to-support-merchant-customers.html "How payment institutions can leverage data to support merchant customers") can be categorized as “waiting” customers. They cannot legally make payments until they have [access to a credit line or until the accounts](https://www.financedigest.com/fingerprint-scanners-to-remain-top-selling-accounting-for-over-one-third-of-access-control-demand-in-2021-future-market-insights.html "Fingerprint Scanners to Remain Top-selling, Accounting for Over One-third of Access Control Demand in 2021: Future Market Insights") are closed. To make sure that they are able to make payments, you can request that your credit account company close the [accounts and inform your customers](https://www.financedigest.com/covid-19-has-made-your-customer-accounts-more-valuable.html "Covid-19 has made your customer accounts more valuable") to do so on their own. It is important for you to make sure that you keep good records of all of your customers because you will be able to refer back to these records in [case the customers do start making payments](https://www.financedigest.com/building-a-business-case-for-integrated-payments.html "Building a Business Case for Integrated Payments").

There are some accounts that can not be [closed without the customer paying](https://www.financedigest.com/impact-com-closes-2021-with-new-google-pay-integration-150m-in-funding-and-51-increase-in-clients-yoy.html "impact.com closes 2021 with new Google Pay integration, 0M in funding and 51% increase in clients YoY") the balance. These include accounts receivable that are due and outstanding and accounts receivable that are already paid. It is important for you to remember that in order for you to calculate an effective accounts receivable turnover ratio you need to count the difference between the number of accounts that are due and outstanding and those that have already been paid.

It is important for you to keep a [close eye on your accounts](https://www.financedigest.com/lebanese-bank-closes-over-30-british-held-accounts-after-uk-ruling-depositors-group.html "Lebanese bank closes over 30 British-held accounts after UK ruling-depositors’ group") receivables. Because they can affect your [cash flow](https://www.financedigest.com/xerox-shares-slide-as-annual-revenue-cash-flow-forecasts-take-a-hit.html "Xerox shares slide as annual revenue, cash flow forecasts take a hit"), it is important that you make sure that you are recording all of your accounts receivable transactions. and payments accurately. You should also make sure that the transaction details are correct.

[In conclusion, it is important that you calculate the accounts receivables ratio in your business before you start to grow your business.](https://www.elearningclasses.com/course?courseid=accounting-fundamentals-for-employers-and-employees) This will allow you to know how many accounts you need to close and how much more money you need to make from each sale. By [tracking](https://www.financedigest.com/how-can-call-tracking-improve-your-business.html "How can call tracking improve your business?") these transactions accurately you can improve the accounts receivable turnover ratio and improve your cash flow.


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