Accounts Receivable Turnover Calculator
Measure how efficiently your company collects outstanding credit sales
Calculate Turnover Ratio
Total sales made on credit during the period
Accounts receivable at start of period
Accounts receivable at end of period
Turnover Analysis Results
Calculation Breakdown
Formula: Turnover Ratio = Net Credit Sales ÷ Average Accounts Receivable
Collection Period: Days = 365 ÷ Turnover Ratio
Performance Insights
Example Calculation
Company ABC - Annual Analysis
Net Credit Sales: $500,000
Beginning Accounts Receivable: $45,000
Ending Accounts Receivable: $55,000
Calculation Steps
Step 1: Average A/R = ($45,000 + $55,000) ÷ 2 = $50,000
Step 2: Turnover Ratio = $500,000 ÷ $50,000 = 10x
Step 3: Collection Period = 365 ÷ 10 = 36.5 days
Result: Company ABC collects its receivables 10 times per year, with an average collection period of 36.5 days.
Industry Benchmarks
30-45 days
36-60 days
24-36 days
45-90 days
40-70 days
* Benchmarks vary by industry. Compare to industry average for accurate assessment.
Ratio Interpretation
High Ratio (>10x)
Efficient collections, good credit policies
Average Ratio (6-10x)
Moderate efficiency, room for improvement
Low Ratio (<6x)
Slow collections, potential cash flow issues
Improvement Tips
Implement stricter credit approval processes
Offer early payment discounts (e.g., 2/10 net 30)
Send regular payment reminders
Use automated billing systems
Review aging reports regularly
Consider factoring for immediate cash
Understanding Accounts Receivable Turnover
What is Accounts Receivable Turnover?
The accounts receivable turnover ratio is a financial metric that measures how efficiently a company collects revenue from its credit customers. It shows how many times a company can turn its accounts receivable into cash during a specific period.
Why It Matters
- •Cash Flow Management: Higher turnover means faster cash collection
- •Credit Policy Effectiveness: Indicates quality of customers and credit terms
- •Operational Efficiency: Reflects collection department performance
The Formula
Turnover Ratio = Net Credit Sales ÷ Average A/R
Collection Period = 365 ÷ Turnover Ratio
- Net Credit Sales: Total credit sales minus returns and allowances
- Average A/R: (Beginning A/R + Ending A/R) ÷ 2
- Turnover Ratio: Number of times receivables are collected annually
- Collection Period: Average days to collect payment (DSO)
Pro Tip: Compare your ratio to industry benchmarks and track trends over time for the most valuable insights.
What Affects the Ratio?
Increases Ratio ↑
- • Stricter credit policies
- • Better collection efforts
- • Early payment incentives
- • Higher quality customers
- • Shorter credit terms
Decreases Ratio ↓
- • Lenient credit policies
- • Poor collection efforts
- • Customer payment issues
- • Extended credit terms
- • Economic downturns
Key Considerations
- • Industry standards vary
- • Seasonal fluctuations
- • Business model impact
- • Customer mix changes
- • Economic conditions
Optimizing Your Turnover Ratio
Before Extending Credit
- ✓ Perform credit checks on new customers
- ✓ Set appropriate credit limits
- ✓ Establish clear payment terms
- ✓ Require deposits for large orders
During Collection
- ✓ Send invoices immediately
- ✓ Follow up on overdue accounts
- ✓ Offer multiple payment methods
- ✓ Use automated reminders