How to get the accounts receivable turnover ratio (+ free calculator)

With 72% of business owners planning to invest in growth in 2025, keeping your cash flow in check is crucial to making those plans a success.

Calculating your accounts receivable turnover ratio can help you avoid negative cash flow surprises. Knowing where your business falls on this financial ratio allows you to spot and predict cash flow trends before it’s too late. In this post, we’ll discuss what accounts receivable is, why you should track it, and how you can improve it.

Understanding the accounts receivable turnover ratio

Accounts receivable turnover ratio and how to calculate it

Accounts receivable turnover example

Why you should track accounts receivable turnover

How to improve your receivables turnover ratio

AR turnover ratio calculation best practices

Boost productivity and enhance profitability

Accounts receivable FAQ

Understanding the accounts receivable turnover ratio

The accounts receivable turnover ratio, or debtor’s turnover ratio, measures how efficiently your company collects revenue. You calculate it by dividing net credit sales by the average accounts receivable. 

Accounts receivable turnover = 

Net credit sales / Average accounts receivable

This ratio is the average number of times your company collects accounts receivable throughout the year. 

An accounts receivable turnover ratio of 12 means that your company collects receivables 12 times per year or every 30 days on average.

A higher accounts receivable turnover ratio indicates that your company collects funds from customers more often throughout the year. On the flip side, a lower turnover ratio may indicate an opportunity to collect outstanding receivables to improve your cash flow.

The accounts receivable turnover ratio is a type of efficiency ratio. Efficiency or quick ratios measure a business’s ability to manage assets and liabilities in the short term. Other examples of efficiency ratios include the inventory turnover ratio and asset turnover ratio. Efficiency ratios can help business owners reduce the amount of time it takes their business to generate revenue.

Accounts receivable turnover ratio and how to calculate it

Calculating your accounts receivable turnover ratio is simple. You can find all the information you need on your financial statements, including your income statement or balance sheet.

1. Determine your net credit sales

First, you’ll need to find your net credit sales or all the sales customers made on credit. Invoices indicate a credit sale to a customer. You collect the money from credit sales at a later date.

Here’s how to find your net credit sales:

• Start by identifying all sales made on credit during the accounting period. These are typically represented by invoices issued to customers.
• Subtract any sales returns or allowances from the total credit sales. This gives you your net credit sales.
• You can usually find this information on your income statement or balance sheet.

The formula for net credit sales is:

Sales on credit – Sales returns – Sales allowances = Net credit sales

2. Calculate average accounts receivable

Average accounts receivable is the sum of starting and ending accounts receivable over an accounting period divided by two. You can find the total accounts receivable on your balance sheet. The formula for average accounts receivable follows:

(Starting accounts receivable + Ending accounts receivable) / 2 = Average accounts receivable

Calculate the accounts receivable turnover ratio

Then, divide your net credit sales (from Step 1) by your average accounts receivable (from Step 2) to find your accounts receivable turnover ratio. The accounts receivable turnover ratio formula is as follows:

Net credit sales / Average accounts receivable = Accounts receivable turnover ratio

4. Use an accounts receivable turnover calculator

To make calculating your accounts receivable turnover even easier, use a calculator template. 

Download the free AR turnover calculator now and take control of your cash flow today.

To get the most from our accounts receivable turnover calculator: 

• Input your data to get instant results
• Track AR turnover trends over time
• Identify areas for improvement

Accounts receivable turnover example

Centerfield Sporting Goods had $250,000 in net credit sales in 2024. They found this number using their annual income statement.

The company’s average accounts receivable for 2024 was $50,000. They found this number using their January 2024 and December 2024 balance sheets. At the beginning of the year, in January 2024, their accounts receivable totaled $40,000. 

In December 2024, their accounts receivable totaled $60,000. To find their average accounts receivable, they used the average accounts receivable formula.

($40,000 + $60,000) ÷ 2 = $50,000

To find their accounts receivable turnover ratio, Centerfield divided its net credit sales ($250,000) by its average accounts receivable ($50,000).

$250,000 ÷ $50,000 = 5

Their accounts receivable turnover ratio is 5. They collect average receivables five times per year or every 73 days.

Centerfield Sporting Goods specifies in their payment terms that customers must pay within 30 days of a sale. Their lower accounts receivable turnover ratio indicates it may be time to work on their collections procedures. 

In doing so, they can reduce the number of days it takes to collect payments and encourage more customers to pay on time.

Why you should track accounts receivable turnover

Your AR turnover ratio measures your company’s ability to issue credit to customers and collect funds on time. Tracking this ratio can help you determine if you need to improve your credit policies or collection procedures. 

Additionally, when you know how quickly, on average, customers pay their debts, you can more accurately predict cash flow trends. If you apply for a small business loan, your lender may ask to see your accounts receivable turnover ratio to determine if you qualify.

It’s important to track your accounts receivable turnover ratio on a trend line to understand how your ratio changes over time.

A higher ratio can mean a few things:

• You have a conservative credit policy. A too-high ratio can indicate that your credit policy is too aggressive. Your credit policy may be dissuading some customers from making a purchase. If your ratio is consistently very high, you may want to consider loosening your credit policy to make way for new customers.
• You have an efficient collections department. And you have high-quality customers. A high ratio indicates that your customers pay their debts on time. This means your collection methods are working, and you’re extending credit to the right customers.
• You operate mostly on a cash basis. Your accounts receivable turnover ratio will likely be higher if you make cash sales primarily.

A lower ratio can indicate a few things:

• Your collections policies aren’t working. A low ratio, or a declining ratio, can indicate a large number of outstanding receivables. If that’s the case, this is a good opportunity to revisit your collection policies and collect invoices past due or late payments.
• Your credit policies are too loose. If your ratio is too low, it may indicate that your credit policy is too lenient. The result is “bad debt.” Bad or uncollectible debt occurs when customers can’t pay. Consider revamping your credit policy to ensure you’re only extending credit to the right customers.
• Your customers are struggling to meet your payment terms. If your payment terms are too stringent, customers might avoid making future purchases from your business because of it. If your ratio is low, take a look at your payment terms. Consider offering more payment methods or payment plans for customers struggling to pay.

How to improve your receivables turnover ratio

If your accounts receivable turnover ratio is lower than you’d like, there are a few steps you can take to raise the score right away.

Streamlining your collection process

Your collection process determines how you collect funds from customers. If you’re struggling to get paid on time, consider sending payment reminders even before payment is due. Implement late fees or early payment discounts to encourage more customers to pay on time. If you can, collect payment information upfront so that you can automatically collect it when payment is due.

Include clear payment terms

Your customers might not realize their payment is past due. Encourage more customers to pay on time by setting a clear payment due date, sending detailed invoices, and offering additional payment options.

Make payments easy

If you only accept one payment option, you may be creating a roadblock to getting paid. Accepting a variety of payment options like credit cards or digital payments removes any unnecessary barriers.

Build strong relationships

​​Happy customers who feel invested in you and your business are more likely to pay up on time—and come back for more. Focus on building strong personal relationships with your customers to keep the cash flow coming in.

Use cloud software

Cloud-based accounting software, like Intuit Enterprise Suite, makes the complex process of billing and collecting payments easy. Automate your collections process, track receivables, and monitor cash flow in one place.

AR turnover ratio calculation best practices

The standard accounts receivable turnover ratio provides valuable insights into your collection efficiency. However, more advanced calculation techniques can offer an even deeper understanding of your AR trends. 

Consider the following methods and if they could help you forecast future performance and make more informed decisions.  

Account for seasonality 

Many businesses have seasonal fluctuations in employees, sales, and customer payment patterns. Consider a retail store that experiences a holiday season sales surge, followed by a slower first quarter. 

Or a restaurant that serves an annual influx of summer tourists. These seasonal variations can skew your AR turnover ratio, making comparing performance across different periods challenging.   

Apply seasonal adjustments to your AR turnover ratio calculations to address these scenarios. Compare your current ratio to the same period in previous years, taking into account the typical seasonal trends. Adjusting for seasonality presents a more accurate picture of your collection efficiency.

Leverage predictive analytics

Analyzing historical data with an ERP can be a powerful strategy for forecasting future AR turnover ratios. Look at past trends related to your sales, payment patterns, and economic conditions to develop predictive models that estimate future collection performance. 

This approach can help you:

• Anticipate potential cash flow challenges: If your model predicts a decrease in your AR turnover ratio, you can proactively take steps to improve collections and manage your cash flow.
• Optimize credit policies: By understanding the factors influencing your AR turnover ratio, you can adjust your credit policies to minimize risk and encourage timely payments.  
• Set realistic goals: Predictive analytics can help you set realistic AR turnover ratio targets based on past trends and anticipated market conditions.

Keep in mind that predictive analytics depends heavily on the quality and quantity of historical data available.

Boost productivity and enhance profitability 

Strong accounts receivable management helps maintain a high turnover ratio and steady cash flow. With Intuit Enterprise Suite, you can streamline financial processes, automate reporting, and gain data-driven insights to optimize profitability. 

This comprehensive suite enhances productivity by reducing manual tasks and providing real-time financial visibility—helping businesses scale with confidence.