💳 Accounts Receivable Turnover Calculator
Calculate collection efficiency
(Beginning AR + Ending AR) / 2
How to Use This Calculator
Enter Net Credit Sales
Type your annual net credit sales (total credit sales minus returns) in dollars. For example, if your net credit sales are $1,200,000, enter 1200000.
Enter Average Accounts Receivable
Type your average accounts receivable in dollars. This is usually (Beginning AR + Ending AR) ÷ 2. For example, if average AR is $100,000, enter 100000.
Click Calculate AR Turnover
Press the button to calculate the accounts receivable turnover ratio and days sales outstanding (DSO).
View Results
See the AR turnover ratio (how many times you collect per year) and the average collection period in days. Higher turnover means faster collections.
Formula
AR Turnover = Net Credit Sales ÷ Average Accounts Receivable
Days Sales Outstanding (DSO) = 365 ÷ AR Turnover
Average AR = (Beginning AR + Ending AR) ÷ 2
Example 1: Company with $1,200,000 net credit sales and $100,000 average AR
Given: Net Credit Sales = $1,200,000, Average AR = $100,000
AR Turnover = $1,200,000 ÷ $100,000 = 12x
DSO = 365 ÷ 12 = 30.4 days
Turnover: 12x (collections per year), Average collection period: 30.4 days
Example 2: Company with $500,000 net credit sales and $150,000 average AR
Given: Net Credit Sales = $500,000, Average AR = $150,000
AR Turnover = $500,000 ÷ $150,000 = 3.33x
DSO = 365 ÷ 3.33 = 109.6 days
Turnover: 3.33x (slower collections), Average collection period: 109.6 days
Example 3: Company with $2,000,000 net credit sales and $80,000 average AR
Given: Net Credit Sales = $2,000,000, Average AR = $80,000
AR Turnover = $2,000,000 ÷ $80,000 = 25x
DSO = 365 ÷ 25 = 14.6 days
Turnover: 25x (very fast collections), Average collection period: 14.6 days
About Accounts Receivable Turnover Calculator
The Accounts Receivable Turnover Calculator computes how fast a company collects its receivables using the formula: AR Turnover = Net Credit Sales ÷ Average Accounts Receivable. This ratio measures collection efficiency and cash flow management. A higher turnover ratio indicates faster collections and better cash flow.
When to Use This Calculator
- Financial Analysis: Analyze how quickly your business collects receivables
- Cash Flow Management: Understand collection efficiency and cash flow timing
- Credit Policy Evaluation: Assess the effectiveness of credit and collection policies
- Business Performance: Compare collection performance across periods
- Investment Analysis: Evaluate accounts receivable management for investment decisions
- Benchmarking: Compare your turnover ratio to industry standards
Why Use Our Calculator?
- ✅ Shows DSO: Also calculates Days Sales Outstanding (average collection period)
- ✅ Quick Analysis: Instantly see collection efficiency
- ✅ Clear Interpretation: Understand what the ratio means for your business
- ✅ Step-by-Step: Displays the formula calculation
- ✅ 100% Accurate: Precise financial calculations
- ✅ Completely Free: No registration required
Understanding AR Turnover
The Accounts Receivable Turnover ratio shows how many times a company collects its average accounts receivable during a year. Higher ratios indicate better collection efficiency.
- High Turnover (e.g., 10-20x): Fast collections, good cash flow, efficient credit management
- Low Turnover (e.g., 3-5x): Slow collections, potential cash flow issues, may indicate credit problems
- Industry Varies: Normal ratios vary by industry—retail typically has higher turnover than manufacturing
- Trend Analysis: Compare ratios over time to track improvement or deterioration
- DSO Interpretation: Days Sales Outstanding shows the average number of days to collect receivables
Real-World Applications
Retail Business: A retail company with $1,200,000 in net credit sales and $100,000 average AR has a turnover of 12x, meaning they collect receivables 12 times per year (every 30.4 days on average).
Manufacturing Company: A manufacturing company with $500,000 in net credit sales and $150,000 average AR has a turnover of 3.33x, meaning they collect receivables 3.33 times per year (every 109.6 days on average).
Service Business: A service company with $2,000,000 in net credit sales and $80,000 average AR has a turnover of 25x, meaning they collect receivables 25 times per year (every 14.6 days on average).
Tips for Using This Calculator
- Use annual net credit sales (not cash sales or total sales)
- Calculate average AR as (Beginning AR + Ending AR) ÷ 2
- Higher turnover is generally better (faster collections)
- Compare your ratio to industry benchmarks
- Monitor trends over time—declining turnover may indicate problems
- Use DSO to understand average collection period in days
Frequently Asked Questions
What is a good AR turnover ratio?
A good ratio depends on your industry. Generally, a higher ratio (10-20x) indicates faster collections and better cash flow. Retail businesses typically have higher turnover than manufacturing companies. Compare to industry benchmarks.
What does Days Sales Outstanding (DSO) mean?
DSO shows the average number of days it takes to collect receivables. Lower DSO is better—it means faster collections. DSO = 365 ÷ AR Turnover. For example, a turnover of 12x means DSO of 30.4 days.
How do I calculate average accounts receivable?
Average AR = (Beginning Accounts Receivable + Ending Accounts Receivable) ÷ 2. This gives you the average balance during the period. Use the same period as your net credit sales (usually annual).
What if my turnover ratio is low?
A low ratio (e.g., 3-5x) may indicate slow collections, credit problems, or cash flow issues. Consider: improving collection processes, offering early payment discounts, screening credit customers, or tightening credit terms.
Can turnover be too high?
Very high turnover (e.g., 30x+) might indicate overly strict credit terms that could limit sales. Balance collection speed with customer relationships and sales growth. Compare to industry standards.
Should I include cash sales in net credit sales?
No! Only include credit sales (sales made on credit terms, not immediate cash payments). Cash sales don't create receivables, so they shouldn't be included in the AR turnover calculation.
How often should I calculate AR turnover?
Calculate AR turnover regularly—monthly, quarterly, or annually—to track trends. Monitor changes over time to identify improvement or deterioration in collection efficiency. Compare periods to spot issues early.