es Payne, an anesthesiologist, is experiencing significant cash flow problems, a
ID: 2539866 • Letter: E
Question
es Payne, an anesthesiologist, is experiencing significant cash flow problems, and has a major to explain to him some options that will improve his accounts receivable turnover in his business. a. I do not understand this 4.3 accounts receivable turnover result. Could you tell me how al imony payment due. His accounts receivable turnover is 4.3. Les needs your professional help He has t he following questions: many days on average it is taking clients to pay me? b. What can I do to motivate these clients to pay me sooner? I need the cash! c. If I borrow some cash at the bank, will it affect the ratio? d. Does this ratio result include those customers that pay me in cash? e. If Les offers terms of n/45, how does this turnover rate of 4.3 relate to the n/45? Explain.Explanation / Answer
a). Accounts receivable 4.3 means that 4.3 times the cash is collected from the accounts receivable in a year. Client is taking nearly 85 days (84.88 days)(365÷4.3) for making payment of a credit sales made to him.
b) 1.Encouraging clients for cash sales by offering lower prices, discounts and incentives
2. Send reminders to clients on a timely basis.
3. Payment terms must be revised and reduced to a lower credit period allowed to client.
c). Borrowing cash from bank does not affect the ratio as it is affected by credit sales made and cash collected thereafter.
d). Customers to whom sales is made on a cash basis will not be included in this ratio.
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