Accounts Receivable Turnover
A ratio measuring how efficiently a company collects payments from customers, calculated by dividing net credit sales by average accounts receivable.
Accounts Receivable Turnover
A financial ratio that measures how efficiently a company collects its receivables, calculated by dividing net credit sales by average accounts receivable for a period.
For example, a distribution company with annual credit sales of $2 million and average accounts receivable of $200,000 would have a turnover ratio of 10, indicating it collects its receivables about 10 times per year or approximately every 36.5 days.
A higher turnover ratio generally indicates more efficient collection processes and better quality customers. This ratio helps management evaluate credit policies, collection procedures, and overall receivables management, with benchmarks varying significantly by industry and payment terms.