Measure collection efficiency and analyze how effectively your business manages credit
Accounts Receivable Turnover Calculator — Optimize your collection process and improve cash flow:
Higher turnover rates indicate efficient credit management, better cash flow, and reduced risk of bad debt.
Low Turnover Alert: Your current AR turnover is below industry average, indicating potential inefficiencies in your collection process. Consider implementing automated reminders, revising credit policies, or offering early payment incentives to improve cash flow.
High Turnover Notice: Your AR turnover is above industry average, indicating strong collection practices. However, extremely high turnover could suggest overly restrictive credit policies that might be limiting sales. Consider reviewing your credit terms to ensure you're not turning away good business.
What this means: Accounts Receivable Turnover measures how many times your company collects its average accounts receivable balance during a period. A higher ratio indicates more efficient credit and collection processes.
Industry averages vary by sector, with retail and consumer goods typically having higher ratios than manufacturing or healthcare. Use this benchmark to identify opportunities for improving your collection strategies and cash flow.
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Accounts Receivable Turnover Ratio is a financial metric that measures how efficiently a company collects payments from its customers who purchased on credit. It quantifies the number of times a company collects its average accounts receivable balance during a specific period, typically a year.
Where: Average Accounts Receivable = (Beginning AR + Ending AR) / 2
Net Credit Sales = Total Credit Sales - Returns - Allowances
The Accounts Receivable Turnover Ratio is a critical KPI for several reasons:
A high accounts receivable turnover ratio (generally above 15) indicates that a company collects its receivables frequently throughout the year. This suggests:
A low accounts receivable turnover ratio (generally below 8) suggests that a company collects its receivables less frequently. This could indicate:
The Accounts Receivable Turnover Ratio can be converted to the Average Collection Period (or Days Sales Outstanding), which represents the average number of days it takes to collect payment after a sale is made:
A "good" accounts receivable turnover ratio varies by industry, but generally:
The accounts receivable turnover ratio is calculated using the following formula:
AR Turnover = Net Credit Sales / Average Accounts Receivable
Follow these steps:
The accounts receivable turnover in days, also known as the average collection period or days sales outstanding (DSO), is calculated by dividing the number of days in the period by the accounts receivable turnover ratio:
Average Collection Period = 365 days / AR Turnover Ratio
While a high AR turnover ratio generally indicates efficient collections, an extremely high ratio could suggest:
A low AR turnover ratio indicates potential problems with your credit and collection processes:
This calculator provides an estimate based on the information provided. For expert guidance on accounts receivable management, consider Paidnice's automated collection solutions.
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