accounts receivable turnover
Definition
The accounts receivable turnover ratio indicates how efficiently a company collects credit sales by showing how many times receivables are converted into cash over a period. It is calculated by dividing net credit sales by the average accounts receivable balance, using the beginning and ending receivables. A high turnover ratio suggests that customers pay their invoices promptly, improving cash flow and reducing the risk of bad debts. Conversely, a low ratio may signal slow collections, overly generous credit terms, or potential credit quality issues. Businesses often convert this measure into days sales outstanding (DSO) by dividing 365 by the turnover ratio, providing an average collection period that helps management identify trends and refine credit policies.
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