Accounts receivable turnover is a measure of what?

Accounts receivable turnover is an important financial metric that provides insights into how efficiently a company manages its receivables. The correct choice reflects the average time that receivables are outstanding, indicating how long it typically takes a company to collect payment from its customers after a sale has been made.

When the turnover ratio is high, it suggests that the company is effective at collecting its receivables, which can improve cash flow and reduce the risk of bad debts. Conversely, a low turnover ratio may indicate that the company is facing difficulties in collecting debts, which could negatively impact its financial health.

By focusing on the average outstanding period of receivables, this measure allows businesses to assess their credit and collection policies, setting benchmarks for improvement in their receivable management. This is particularly relevant within the context of ensuring liquidity and operational efficiency in financial planning.