Measure how quickly your business collects cash from credit sales
Sales Data
Receivables (Invoices Owed)
AR Turnover Ratio
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What is Accounts Receivable (AR) Turnover?
The Accounts Receivable Turnover ratio measures the number of times a company collects its average accounts receivable balance in a year. A high ratio indicates a more efficient collection process and high-quality customers who pay their debts quickly. Conversely, a low ratio might suggest a poor collection process, bad credit policies, or customers who are not financially viable.
- Cash Flow Impact: The faster you collect, the more cash you have to pay your own bills and invest in growth.
- Credit Policy: If your collection days are significantly longer than your credit terms (e.g., you give 30 days but take 60 to collect), you need to tighten your follow-up process.
- Bad Debt Risk: Slow collections often lead to "Bad Debt," where the customer eventually never pays at all.
What is a "Good" AR Turnover? +
It depends on your terms. If your payment terms are Net-30, a "good" ratio is around 12.0 (meaning you collect every 30 days). A ratio higher than 12 means you are collecting faster than your terms.
Should I include cash sales? +
No. Cash sales are collected immediately. This ratio specifically measures how well you manage the money that is *owed* to you through credit/invoices.
How can I improve this ratio? +
You can improve it by offering "Early Payment Discounts" (e.g., 2% off if paid in 10 days), automating invoice reminders, or performing stricter credit checks on new customers.
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