Liquidity of accounts receivable measures how quickly they convert to cash, assessed via the accounts receivable turnover = net sales ÷ average receivables (beginning + ending ÷ 2). Average days outstanding = 365 ÷ turnover. For Allete, Inc.: $1,063.8M sales, $128.8M avg. receivables = 8.26 times, 44 days; for 3M: $35,355M sales, $5,200M avg. receivables = 6.8 times, 54 days. Uses:
Credit Policy Effectiveness: High turnover (short days) indicates efficient collections (e.g., Allete vs. 3M); Regis Stores improved from 90+ days.
Liquidity Insight: Faster collections boost cash flow, critical for obligations.
Industry Context: Utilities (Allete) have higher turnover than manufacturers (3M).
Management uses this to refine credit screening and collection, ensuring receivables support liquidity within the operating cycle, aligning with the Pathways model’s focus on actionable decision-making.