Receivables Turnover Ratio Calculator

Compute your accounts receivable turnover ratio, Days Sales Outstanding (DSO), and quickly see how efficiently you collect from customers.

Receivables Turnover & DSO Calculator

Inputs

  • Net credit sales for the period
  • Beginning & ending accounts receivable (optional beginning)
  • Number of days in the period

Outputs

  • Receivables turnover ratio
  • Average collection period (DSO)
  • Average AR balance used
  • Quick interpretation vs. benchmarks
$

Use net credit sales (after returns, discounts). If unknown, use total sales as an approximation.

Typical values: 365 (year), 360 (banking year), 90 (quarter), 30 (month).

$

AR balance at the start of the period. Leave blank if not available.

$

AR balance at the end of the period (required).

What is the receivables turnover ratio?

The receivables turnover ratio (also called accounts receivable turnover or AR turnover) measures how efficiently a business collects cash from customers who buy on credit. It shows how many times, on average, you convert your accounts receivable into cash during a period.

A higher ratio generally means faster collections and stronger cash flow, while a lower ratio can signal slow-paying customers, weak credit policies, or collection issues.

Receivables turnover formula

Basic formula

\[ \text{Receivables Turnover} = \frac{\text{Net Credit Sales}}{\text{Average Accounts Receivable}} \]

Average accounts receivable

\[ \text{Average AR} = \frac{\text{Beginning AR} + \text{Ending AR}}{2} \]

If you do not have beginning AR, you can approximate using just ending AR:

\[ \text{Receivables Turnover} \approx \frac{\text{Net Credit Sales}}{\text{Ending AR}} \]

Days Sales Outstanding (DSO) from receivables turnover

Many finance teams also convert the ratio into Days Sales Outstanding (DSO), which expresses the same idea in days:

\[ \text{DSO} = \frac{\text{Number of Days in Period}}{\text{Receivables Turnover}} \]

For example, if your annual receivables turnover is 10 and you use 365 days:

\[ \text{DSO} = \frac{365}{10} = 36.5 \text{ days} \]

Step-by-step example

Suppose your company reports the following for the year:

  • Net credit sales: $1,200,000
  • Beginning accounts receivable: $180,000
  • Ending accounts receivable: $220,000
  • Period length: 365 days

1. Compute average accounts receivable

\[ \text{Average AR} = \frac{180{,}000 + 220{,}000}{2} = \frac{400{,}000}{2} = 200{,}000 \]

2. Calculate receivables turnover

\[ \text{Receivables Turnover} = \frac{1{,}200{,}000}{200{,}000} = 6.0 \text{ times} \]

3. Convert to DSO

\[ \text{DSO} = \frac{365}{6.0} \approx 60.8 \text{ days} \]

This means that, on average, it takes about 61 days to collect from customers.

How to interpret your receivables turnover ratio

There is no single “good” receivables turnover ratio. Interpretation depends on your industry, business model, and credit terms. Use these guidelines:

  • Compare to your credit terms. If you offer net 30 terms but your DSO is 60 days, customers are paying much later than agreed.
  • Track trends over time. A falling turnover (rising DSO) can be an early warning sign of credit risk or operational issues.
  • Benchmark against peers. Compare your ratio to similar companies in your sector and region.

Typical ranges (very rough rules of thumb)

  • High turnover (e.g., > 12x, DSO < 30 days): Very fast collections. Common in subscription, SaaS, and card-based businesses.
  • Moderate turnover (6–12x, DSO ~30–60 days): Typical for many B2B companies with net 30–60 terms.
  • Low turnover (< 6x, DSO > 60 days): Collections may be slow; review credit policy, invoicing, and follow-up processes.

Improving your receivables turnover

To raise your receivables turnover ratio and reduce DSO, consider:

  • Tightening credit policies for new or high-risk customers.
  • Invoicing faster and more accurately (no errors that delay payment).
  • Offering early payment discounts (e.g., 2/10 net 30).
  • Automating reminders and dunning workflows.
  • Segmenting customers and focusing collections on large or overdue balances.

Limitations of the receivables turnover ratio

  • Seasonality: Using only beginning and ending AR may not capture seasonal spikes. Monthly averages can give a clearer picture.
  • Credit vs. cash sales: If you use total sales instead of net credit sales, the ratio may be overstated.
  • Industry differences: Comparing a wholesaler to a SaaS company is not meaningful; always benchmark within your industry.
  • Policy trade-offs: Very high turnover might mean overly strict credit policies that hurt sales growth.

FAQ

What is a good receivables turnover ratio?

It depends on your sector and terms. As a starting point, aim for a ratio that is stable or improving over time and at least in line with industry averages. For many B2B firms, a turnover between 6 and 12 (collecting every 30–60 days) is common.

Should I use net credit sales or total sales?

Use net credit sales whenever possible: credit sales minus returns, allowances, and discounts. If you only have total sales and most of your sales are on credit, total sales can be a rough proxy, but the ratio will be less precise.

Can I calculate receivables turnover for a month or quarter?

Yes. The formula works for any period. Just make sure that:

  • Sales and AR balances are for the same period, and
  • You use the correct number of days (e.g., 30, 90) when converting to DSO.

How is receivables turnover related to cash flow?

Faster receivables turnover usually means more predictable and stronger operating cash flow, reducing the need for external financing. Slow turnover can tie up working capital and increase the risk of bad debts.