In short
- AR turnover counts how many times you collect average receivables per period.
- Formula: net credit sales ÷ average accounts receivable.
- Higher is better — it means receivables convert to cash more often.
- It’s closely related to DSO (365 ÷ turnover ≈ DSO).
AR turnover ratio, defined
The accounts receivable turnover ratio tells you how efficiently a business collects what it’s owed. A ratio of 8 means the company collected its average receivables eight times during the year.
A higher ratio signals fast, effective collections; a falling ratio warns that receivables are piling up.
How to calculate AR turnover
AR turnover = net credit sales ÷ average accounts receivable, where average AR is typically (beginning + ending balance) ÷ 2 for the period.
You can convert it to days: 365 ÷ turnover ratio ≈ DSO, which is often easier to act on.
What is a good AR turnover ratio?
There’s no universal target — it varies by industry and payment terms. Compare against peers and, more importantly, your own trend. A rising ratio means collections are improving; a consistent multi-channel follow-up process is the most reliable way to move it.
Frequently asked questions
What does a low AR turnover ratio mean?
A low ratio means a company is slow to collect its receivables, which can signal lenient credit terms, weak follow-up, or customers in financial difficulty. It usually corresponds to a high DSO.
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DSO · Accounts receivable · AR aging · CEI · Browse the full glossary →