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Why should a firm be concerned if its accounts receivable turnover ratio in unusually high compared to the industry norm?
Fabm
By maintaining accounts receivable, companies are indirectly extending interest-free loans to their customers. A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. To put it in simple terms, the higher the turnover ratio, the faster a business is collecting its receivables and the more cash the company generally has on hand. Generally, this means it's good. However an unsually high turnover compared to the industry norm could mean that your credit terms are tighter than your competitors' (e.g. you could be giving 30 days' credit while your competitors give 60 days) and you run the risk of losing customers to them. In addition it could also signal excessive time spent in monitoring AR and making collection efforts.
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