Accounts Receivable Turnover Calculator
The accounts receivable turnover ratio measures how efficiently a business collects money owed to it by customers. A high turnover ratio means the business collects credit sales quickly, reducing the risk of bad debts and improving cash flow. A low ratio signals slow collections that may require investigation. This calculator also computes days sales outstanding (DSO), which translates the turnover ratio into the average number of days it takes to collect a payment after a sale is made.
Accounts receivable turnover formula
AR Turnover = Net Credit Sales / Average Accounts Receivable
Days Sales Outstanding (DSO) = 365 / AR Turnover
Example: Net Credit Sales $1,200,000, Average AR $100,000. AR Turnover = $1,200,000 / $100,000 = 12.00 times. DSO = 365 / 12 = 30.42 days.
Improving accounts receivable turnover
- Review credit terms: if your terms are net 60 but DSO is 90, collections are running 30 days late.
- Send invoices promptly and follow up with reminders before the due date.
- Offer early payment discounts (for example, 2/10 net 30) to incentivise faster payment.
- Tighten credit policies for new customers with poor credit history.
- Consider invoice factoring if cash flow is constrained by slow-paying customers.
Frequently asked questions
What is the accounts receivable turnover ratio?
The AR turnover ratio is net credit sales divided by average accounts receivable. It measures how many times a business collects its outstanding receivables during a period. A higher ratio means faster collection of credit sales.
How do I calculate average accounts receivable?
Average accounts receivable is (beginning AR + ending AR) / 2. If you only have end-of-period data, you can use the ending balance, though the average is more accurate for comparisons across periods.
What is days sales outstanding (DSO)?
DSO is 365 / AR Turnover Ratio. It expresses the average number of days it takes to collect a credit sale. A DSO of 30 means it takes about 30 days on average to collect payment after invoicing.
What is a good accounts receivable turnover ratio?
A higher ratio is generally better, as it means faster cash collection. A ratio of 8 to 12 (DSO of 30 to 45 days) is common for businesses with net 30 payment terms. Compare to your industry benchmark and your own payment terms.
What causes a low AR turnover ratio?
A low ratio may result from lenient credit policies, poor collections practices, customer financial difficulties, billing errors, or disputed invoices. It can also signal that the business is granting credit to high-risk customers.
Official sources
- FASB ASC 310: Receivables.
- SBA: Manage Your Business Finances.
Reviewed by the CalculatorHub team, edited by James Graham, 15 June 2026. See our methodology.