The receivables turnover ratio is an efficiency measure that shows how quickly a business collects the money customers owe it. It divides net credit sales for a period by the average balance of accounts receivable during that period. It is another name for the accounts receivable turnover ratio, which covers the calculation, interpretation and limitations in detail.
How the term is used
Analysts, lenders and credit managers often shorten the name to receivables turnover or debtor turnover. A company with net credit sales of $6,000,000 and average receivables of $750,000 has a receivables turnover of 8 times a year. Dividing 365 by the turnover converts it into an average collection period of about 46 days, a figure also known as days sales outstanding or days sales in accounts receivable.
A higher ratio generally means faster collection and tighter credit control, while a falling ratio may indicate looser credit terms, customers in financial difficulty or a buildup of disputed invoices. The ratio is most useful when compared with the company's own credit terms, its past results and competitors in the same industry. Because it relies on average balances, it can be distorted by seasonal sales or by receivables sold through factoring, so analysts often check it against an aging schedule of receivables.