The formula
Accounts receivable turnover is credit sales divided by average accounts receivable. Average receivables is the opening balance plus the closing balance, divided by two.
The ratio answers a question with no units: how many times over did you collect everything you were owed. Dividing the days in the period by the ratio converts it into days to collect, which is the same number DSO gives you.
Turnover or days, and when to use each
Use the ratio when comparing periods or businesses, because it does not care whether you are looking at a month or a year. Use days when you are talking to somebody about a specific account, because a person understands forty-one days and has no intuition at all for 8.75 times.
If you only ever look at one, look at the days.
What moves it
A falling ratio usually means one of three things: you have taken on a large customer who pays slowly, your invoices are going out later than they used to, or a few old invoices have stopped moving and are dragging the average up. The aging calculator separates the third case from the first two in about a minute.
Related calculators
- DSO calculatorDays sales outstanding, and what shortening it releases
- AR aging calculatorThe balance owed, split by how overdue it is
- Bad debt calculatorWrite-offs as a percentage, and what they cost to replace
Questions people ask
What is the accounts receivable turnover formula?
Credit sales divided by average accounts receivable, where average receivables is the opening balance plus the closing balance divided by two.
What is a good accounts receivable turnover ratio?
It depends entirely on your terms. Convert the ratio to days by dividing the period length by the ratio, then compare those days to the terms on your invoices. That comparison is meaningful where the bare ratio is not.
Is turnover the same as DSO?
They are two views of the same figure. Days in the period divided by the turnover ratio gives days sales outstanding. This page shows both.
Should the numerator be total sales or credit sales?
Credit sales. Cash and card sales never sat in receivables, so including them inflates the ratio and makes collection look faster than it is.
Why use average receivables rather than the closing balance?
One large invoice landing near period end would distort the closing balance and the ratio with it. Averaging the two ends smooths that out.
What does a very high turnover ratio mean?
Usually that you collect quickly, which is good. Occasionally it means your terms are so tight that customers who need thirty days go elsewhere, which is worth checking against the work you are not winning.
Can I calculate this monthly?
Yes. Use that month's credit sales and that month's opening and closing receivables, and set the period to 30 days. Monthly figures are noisier but they show a problem months before an annual number does.
Where do I find these numbers?
Opening and closing receivables come off the balance sheet at each end of the period. Credit sales is revenue less cash and card takings.