How can a company improve its accounts receivable turnover ratio?

Improving the accounts receivable turnover ratio is primarily about managing how quickly a company can collect cash from its credit sales. Optimizing credit policies and invoicing plays a crucial role in this process. By refining credit policies, a company can ensure it extends credit only to customers who are likely to pay their invoices on time, thereby reducing the risk of bad debts and late payments.

Effective invoicing practices also contribute significantly. This includes issuing invoices promptly, ensuring accuracy, and possibly utilizing more efficient billing systems. Clear payment terms can further encourage customers to settle their accounts more quickly. With these optimized practices, the company can expect to see a decrease in the average collection period, which directly enhances the accounts receivable turnover ratio.

Other strategies, such as increasing product prices, hiring additional sales staff, or expanding into new markets, do not directly address the efficiency of collecting payments from customers who already have outstanding invoices. These actions could potentially affect sales volume or market reach but would not inherently improve the accounts receivable turnover ratio itself.