Slow accounts receivable turnover is a common cash-flow challenge for businesses. And bad debt losses are sure to follow. Slow receivables turnover is a problem rarely solved by traditional bank financing. The ideal way to improve your receivables turnover and manage bad debt loss is to outsource your accounts receivable management to an experienced lender. Flexible financing can help you bridge the gap between paying suppliers and collecting from customers.
Let Accord solve slow receivables turnover and eliminate risk
Our Slow Receivables Turnover and Bad Debt Loss Services
Accord’s three simple solutions can eliminate the risk of a bad debt loss and relieve the pressure of slow receivables turnover:
Accounts Receivable Financing
Accounts receivable financing through asset-based lending is a viable alternative to bank financing for companies looking for maximum flexibility. An Accounts receivable facility can unlock the value of the accounts receivable you have earned but have not yet collected.Learn More
Challenges of Slow A/R Turnover and Bad Debt Loss
If you’ve shipped and your customer fails to pay, what do you do? Collecting in a timely manner is a problem, especially if you want to retain the customer relationship. However, the real problem behind this predicament is credit.
If the right credit decision was made before the shipment—when they were approved for terms, you wouldn’t have so much trouble collecting now. Often, poor credit decisions quickly snowball into bad debt loss.
Carrying a past-due customer, or writing off a bad debt, means you have to borrow from the bank. This means the money you’re owed is working for your delinquent customer and your bank. Which brings us back to collections. Collections are a heavy user of time, effort and money. They also require a certain attitude on the part of the collector. Good collectors are not born, they are carefully trained.
Frequently Asked Questions
Slow receivables turnover is when your accounts receivable are extending beyond the standard or agreed upon terms.
If your company is experiencing slow receivables turnover, you should consider utilizing Accord’s experts who can provide accounts receivable management to streamline your entire A/R process, or improve your firm’s liquidity with accounts receivable financing.
Your accounts receivable turnover ratio is calculated by using the following formula:
Accounts Receivable Turnover Rate=Net Credit Sales/Average Net Accounts Receivable
The ratio is calculated by your net credit sales for a given period divided by average accounts receivable for that same period. This will tell you whether your accounts receivable are being paid within the agreed term or you are experiencing slow receivables turnover.
A high accounts receivable turnover ratio indicates that your customers are paying in a timely manner and as a result you are limiting the amount of capital tied up in your accounts receivable.
A low ratio, on the other hand, indicates that you are experiencing slow receivables turnover and that you should take measures to avoid this turning into bad debt.
Inventory turnover is the rate at which your company is selling and replacing inventory. Accounts receivable turnover is the rate at which your company is collecting on sales where you have extended credit to your customers.
One of the best ways to improve your accounts receivable turnover is to outsource your accounts receivable management and/or receive A/R financing.
Accord has decades of experience improving slow receivables turnover and providing accounts receivable financing to ensure your success. Call us now to see how you can improve your slow receivables turnover at +1-800-967-0015.
A bad debt loss occurs when you are unable to collect an outstanding invoice or account receivable from your customer.
To calculate bad debt loss percentage or ratio, divide the amount of your bad debts by the total sales for a specific period of time, and then multiply by 100.
Bad debt loss is uncollected debt owed to your company.
Capital loss refers to an investment your company made that depreciated in value.
No, your allowance for bad debts is applied as a contra account against your accounts receivable, therefore reducing the total assets on your balance sheet.
The best bad debt collection agencies have the following main characteristics:
- an official license to operate
- a history of successfully collecting on defaulted debts
- experience in your industry
- a volume of debt being collected of a similar scale as that which you need collected
- a dedicated trust account to gather payments from your debtors separately from those of other
- customers of the collecting agency
- evidence of the collection process’ conformance to state/province regulations—you may be liable for your agency’s behavior if no prior due diligence has been done
Often a collection agency will be able to help you recover a portion of your bad debts.
However, you can also implement strategies to prevent bad debts before they occur. This would include credit guarantees or accounts receivables management services from a company such as Accord, that has over 40 years of experience steering companies away from bad debt losses.
Give us a call to learn how we can help you succeed: +1-844-932-9940 (Canada) / +1-844-725-4225 (US).