Question

What does too high 'Trade Receivables Turnover Ratio' indicate?

Answer 1

A high Trade Receivables Turnover Ratio suggests that the company is receiving payments from clients too quickly. While this shows effective credit management and solid cash flow, it could also indicate that the company’s procedures for credit are excessively rigid, thereby reducing sales by not providing credit to consumers who require it. This could also imply that the company is missing out on possibilities to strengthen client connections or increase sales.