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 forget to check when making business decisions.
Accounts receivables are money paid out by a customer to you because you have made a sale to them. These include cash payments made by customers in advance of purchase and payments made during the course of your business 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 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.
An important change 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. This makes it easier to track the accounts receivables to sales ratio.
Another way you can increase the accounts payable is to record a higher percentage of your cash sales as accounts payable. There are several ways to record these transactions such as invoicing the customer directly and then sending a receipt. or using direct deposit or a bank transfer service.
One of the most important things that you can do to improve the accounts payable ratio is to track the customers 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 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.
Customers who have not yet made any payments can be categorized as “waiting” customers. They cannot legally make payments until they have access to a credit line or until the accounts 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 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.
There are some accounts that can not be closed without the customer paying 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 receivables. Because they can affect your cash flow, 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. 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 these transactions accurately you can improve the accounts receivable turnover ratio and improve your cash flow.