Accounts receivable turnover
Definition
Accounts receivable turnover is a ratio that measures how many times a business collects its average accounts receivable balance during a period. It is calculated by dividing net credit sales by average accounts receivable.
Formula
Accounts receivable turnover = Net credit sales ÷ Average accounts receivable
Why it matters
A higher turnover means you collect from customers quickly and have less cash tied up in unpaid invoices. A falling ratio can signal loose credit policies or customers who are struggling to pay.
Example
A wholesaler has net credit sales of $600,000 for the year and accounts receivable of $40,000 at the start and $60,000 at the end. Average receivables are $50,000, so turnover is $600,000 ÷ $50,000 = 12 times. That equals about 365 ÷ 12 ≈ 30 days to collect.
Common questions
How do I convert receivables turnover into days?
Divide the number of days in the period by the turnover ratio. For a year, 365 ÷ turnover gives the average collection period, which is the same idea as DSO.
Should I use total sales or credit sales?
Use net credit sales when available, because cash sales never create receivables and would inflate the ratio.
Related Terms in Core Accounting
Segregation of duties
Segregation of duties is an internal control that splits key steps of a financial process among different people so no single person can both commit and conceal an error or fraud. The classic split separates authorizing transactions, recording them, and having custody of assets.
Bank rule (bank feed rule)
A bank rule is an automated instruction in accounting software that categorizes imported bank or card transactions based on conditions such as payee, description, or amount. When a transaction matches the rule, it is assigned the preset account, contact, or tax treatment automatically.
Continuous close
Continuous close is an approach to accounting where reconciliations, categorization, and adjustments are performed throughout the period rather than all at once at month end. The goal is to keep the books close to final at any point so the formal close takes much less time.
Accrued Expenses
Costs a business has incurred but not yet been billed for or paid, recorded as a liability so the expense lands in the period it belongs to. Typical examples are wages earned but unpaid at month end, interest, and utilities consumed before the invoice arrives. Reversed when the actual bill is booked.
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