What is Accounts Receivable Turnover?

This financial metric measures how efficiently a company collects revenue from its customers over a specific period. It is calculated by dividing net credit sales by the average accounts receivable during that period. A higher turnover ratio indicates effective credit and collection processes, reflecting positively on the company's cash flow and operational efficiency.

You can calculate this ratio using the following formula:

Accounts receivable turnover ratio = net credit sales/average accounts receivable

If a company has high AR turnover, it’s good at collecting money from customers. Meanwhile, low AR turnover suggests that a business is having trouble collecting accounts receivable (or that its payment terms are overly flexible).