How do you calculate receivables turnover ratio?

Here is a receivables turnover calculator, which computes how quickly a company turns over its receivables, or sales extended on credit to customers. Enter the company's net credit sales (or, optionally, top line sales) and two period's accounts receivable to compute the ratio. What is the receivables turnover ratio?

What is a turnover ratio & why is it important?

Analyzing the turnover ratio for receivables can also help sales and finance teams identify emerging trends in customer sales. For instance, a company can monitor the turnover ratio to observe patterns that can indicate increases or decreases in sales, especially credit sales.

What happens if Accounts Receivable Turnover Ratio is low?

If a company's accounts receivable turnover ratio is low, this may be an indicator that a company is not reviewing the creditworthiness of its clients enough. Slower turnover of receivables may eventually lead to clients becoming insolvent and unable to pay.

How does a distribution division affect a company's turnover ratio?

For example, if the company's distribution division is operating poorly, it might be failing to deliver the correct goods to customers in a timely manner. As a result, customers might delay paying their receivables, which would decrease the company’s receivables turnover ratio.