Receivables Turnover Calculator Formula
Understand the math behind the receivables turnover calculator. Each variable explained with a worked example.
Formulas Used
Receivables Turnover
ar_turnover = (ar_start + ar_end) > 0 ? net_credit_sales / ((ar_start + ar_end) / 2) : 0Average Collection Period
avg_collection_days = (ar_start + ar_end) > 0 ? 365 / (net_credit_sales / ((ar_start + ar_end) / 2)) : 0Average Accounts Receivable
avg_ar = (ar_start + ar_end) / 2Variables
| Variable | Description | Default |
|---|---|---|
net_credit_sales | Net Credit Sales(USD) | 800000 |
ar_start | Accounts Receivable (Beginning)(USD) | 60000 |
ar_end | Accounts Receivable (End)(USD) | 100000 |
How It Works
How to Calculate Receivables Turnover
Formula
Receivables Turnover = Net Credit Sales / Average Accounts Receivable Average Collection Period = 365 / Receivables Turnover
This ratio measures how many times per year a company collects its average receivables balance. A higher number indicates faster collection. The average collection period converts the ratio into days, giving you a concrete sense of how long customers take to pay their invoices.
Worked Example
A company had $800,000 in net credit sales. Accounts receivable were $60,000 at the start and $100,000 at the end.
- 01Average AR = ($60,000 + $100,000) / 2 = $80,000
- 02Receivables Turnover = $800,000 / $80,000 = 10.0
- 03Average Collection Period = 365 / 10 = 36.5 days
Frequently Asked Questions
What is a good receivables turnover?
Higher is better, but it depends on your payment terms. If you offer net-30 terms and your collection period is 35 days, you are performing well. A collection period much longer than your terms suggests collection issues.
How can I speed up collections?
Offer early payment discounts, send invoices promptly, follow up before due dates, tighten credit policies, and consider requiring deposits or shorter payment terms for slow-paying customers.
Learn More
Guide
Cash Flow Analysis Guide
Learn how to analyze cash flow for your business. Understand operating, investing, and financing cash flows, and why profitable companies can still run out of cash.
Ready to run the numbers?
Open Receivables Turnover Calculator