Accounts receivable turnover
In one sentenceNet credit sales divided by average accounts receivable, showing how many times a year the business collects and renews what customers owe it.
Simply put
The higher the ratio, the faster collection is and the sooner cash comes back to you. A low ratio may mean lax credit selling or struggling customers.
If you divide 365 days by the ratio, you get days sales outstanding, which is the same figure expressed in days.
Worked example
A building materials supplier made credit sales of 1,200,000 SAR during the year, and the customer balance was 180,000 SAR at the start of the year and 120,000 SAR at its end.
Average accounts receivable(180,000 + 120,000) ÷ 2 = 150,000 SAR
Turnover1,200,000 ÷ 150,000 = 8 times
Days sales outstanding365 ÷ 8 = 45.6 days
Accounts receivable turnover8 times
Formula: Net credit sales ÷ average accounts receivable
Don't confuse it with
Days sales outstandingIt is the same indicator in days: 365 ÷ turnover, so a rise in one is matched by a fall in the other.
in FullScreen ERP
Cash and credit sales in the system, with a credit limit for each customer and an alert when it is exceeded. Sales and POS