Overview
This Accounts Receivable Turnover Ratio Excel model is for beginners who are looking to learn more about the ratio, and who want to teach themselves based on an example. The A/R turnover ratio, or debtor’s turnover ratio, is an efficiency ratio that measures how the ability of a company to collect cash from its debtors. The A/R turnover ratio measures the number of times over a given period that a company collects its average accounts receivable. This ratio is an efficiency ratio which measures the financial and operational performance of a company.  A high A/R turnover ratio means that the company's customer base is able to pay their debts quickly and that the company follows a tight credit policy. On the other hand, a low ratio indicates that the company has an inefficient credit sales collection process, which could arise from extending credit terms to non-creditworthy customers or extending credit policy for too long.

Receivable Turnover Ratio Formula

The formula for calculating the A/R turnover ratio is expressed as the following: A/R Turnover Ratio = Net Credit Sales / Average Accounts Receivable Where:
  • Net credit sales = Sales on credit - Sales returns - Sales allowances
  • Average accounts receivable = (Beginning A/R + Closing A/R) / 2

A/R Turnover in Days

The A/R turnover in days (also referred to as days sales outstanding) measures the number of days it takes a customer to pay off credit sales. The formula is as follows: Receivable turnover in days = 365 / Receivable turnover ratio   Generally speaking, a company would want to have a high receivable turnover ratio and a low days sales outstanding to optimize its credit collection process and ensure a consistent cash inflow from credit sales.

Learn More About Accounts Receivable Turnover Ratio

Check out CFI's guide on A/R turnover ratio to have a better understanding of its definition, formula, and uses!
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