A very high receivable turnover generally indicates which of the following?

A very high receivable turnover generally indicates which of the following?

• A. Fast collection and possibly tighter credit policy
• B. Slow collection and poor credit policy
• C. High inventory levels
• D. Low price strategy

Answer: (A)

A very high receivable turnover means the company is converting its credit sales into cash very quickly. This happens when customers pay promptly and/or when the firm maintains strict credit terms, reducing the amount of receivables outstanding. The turnover is calculated by dividing net credit sales by average accounts receivable, so a higher ratio points to faster collections (lower days sales outstanding) and often a tighter credit policy that limits the amount of receivables carried. It doesn’t reflect how fast inventory turns or pricing strategy, which are governed by other metrics. So the best interpretation is that collections are fast and the firm may be enforcing tighter credit terms.

A very high receivable turnover means the company is converting its credit sales into cash very quickly. This happens when customers pay promptly and/or when the firm maintains strict credit terms, reducing the amount of receivables outstanding. The turnover is calculated by dividing net credit sales by average accounts receivable, so a higher ratio points to faster collections (lower days sales outstanding) and often a tighter credit policy that limits the amount of receivables carried. It doesn’t reflect how fast inventory turns or pricing strategy, which are governed by other metrics. So the best interpretation is that collections are fast and the firm may be enforcing tighter credit terms.