Source: Finance and Accounting Guru
The Accounts Receivable (A/R) system can be used to generate a lot of reports. All have value, some more than others, but all take time and resources to complete. The reports mentioned in this paper help maximize the company's financial potential. The faster receivables turn over and amounts owed are converted into cash, the better. A/R turnover rate is calculated by dividing net credit sales by the average of accounts receivables. If the turnover rates of both accounts receivable and accounts payable match, so much the better. If the A/R turnover rate exceeds that of payables, fantastic! That means money is coming in faster than it's going out. And it doesn't get any better than that.