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Accounts Receivable Turnover

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).

Related terms

30-Day and 13-Week Operating Cash Burn
30-day and 13-week operating cash burn are also known as the “burn rate.” These are the rates at which a business consumes its cash reserves when it isn’t bringing in profit. 
ASC 606
Accounting Standards Codification (ASC) 606 is a standard framework for revenue recognition developed by the Financial Accounting Standards Board (FASB) for companies operating within the United States.
Account Reconciliation
Account reconciliation is the process of comparing two sets of records to ensure their accuracy and consistency.
Accounts Payable
Accounts payable (AP) refers to the amount of money that a business owes to its suppliers or creditors for goods or services purchased on credit.
Accounts Payable Days
Accounts Payable Days (AP Days), also referred to as Days Payable Outstanding (DPO), is a financial ratio that measures the average time a company takes to pay its suppliers or vendors for credit purchases.
Accounts Payable Turnover
Accounts payable turnover explains how many times a business pays its creditors in a set timespan. Companies can use this metric to measure their short-term liquidity.