What is Accounts Receivable Turnover?
Accounts Receivable Turnover is a financial ratio that measures how efficiently a company collects payment from its customers on credit sales. A higher turnover ratio indicates that a company collects its receivables more frequently throughout the year.
The AR Turnover Formula
AR Turnover Ratio = Net Credit Sales / Average Accounts Receivable
Where Average AR = (Beginning AR + Ending AR) / 2
Days Sales Outstanding (DSO)
DSO = (Average AR / Net Credit Sales) x Number of Days
Or simply: DSO = Number of Days / AR Turnover Ratio
DSO represents the average number of days it takes to collect payment after a sale.
How to Use This Calculator
- Enter your net credit sales (total credit sales minus returns)
- Enter accounts receivable at the start of the period
- Enter accounts receivable at the end of the period
- Select the time period for your data
- Optionally add your credit terms and industry average for comparison
Interpreting the Results
- High Turnover: Company collects receivables quickly (efficient collection)
- Low Turnover: Company takes longer to collect (potential cash flow issues)
- DSO vs. Credit Terms: If DSO exceeds credit terms, customers are paying late
Industry Benchmarks
- Retail: 5-15 days DSO (often cash or card transactions)
- Manufacturing: 40-60 days DSO
- Wholesale: 30-50 days DSO
- Services: 45-90 days DSO (varies widely)
Ways to Improve AR Turnover
- Invoice promptly and accurately
- Offer early payment discounts
- Implement stricter credit policies
- Follow up on overdue accounts quickly
- Accept multiple payment methods
