Accounts Receivable Turnover Ratio: What It Is and How to Measure It

The accounts receivable turnover ratio is one of the most useful metrics for evaluating how efficiently a company collects payments from customers. It shows how many times, on average, receivables are converted into cash during a given period.

For CFOs and finance leaders, AR turnover provides an important lens into liquidity, working capital management, and collections performance. It is also closely linked to days sales outstanding (DSO) and overall cash flow health.

In this article we will explain what AR turnover is, how to calculate it, what the results mean, and how improving collections and reducing DSO can strengthen this metric.

What Is the Accounts Receivable Turnover Ratio?

Accounts receivable turnover = Net Credit Sales ÷ Average Accounts Receivable

• Net Credit Sales are total sales made on credit (excluding cash sales and returns).
• Average Accounts Receivable is the average of opening and closing receivables during the period.

The result shows how many times receivables are collected in full over the course of a year, quarter, or month.

• A higher AR turnover ratio means customers are paying quickly and receivables are being collected efficiently.
• A lower AR turnover ratio suggests slower collections, growing receivables, and potential cash flow stress.

How to Calculate Accounts Receivable Turnover

Formula:

AR Turnover Ratio = Net Credit Sales ÷ Average Accounts Receivable

Example:

• Net Credit Sales (annual): $24 million
• Beginning AR: $4 million
• Ending AR: $6 million
• Average AR = ($4m + $6m) ÷ 2 = $5m
• AR Turnover = $24m ÷ $5m = 4.8

This means the company collects its average receivables about 4.8 times per year, or roughly every 76 days (365 ÷ 4.8).

The Link Between AR Turnover and DSO

The accounts receivable turnover ratio and days sales outstanding (DSO) are two sides of the same coin.

• AR Turnover tells you how many times receivables are collected during a period.
• DSO tells you the average number of days it takes to collect.

The formulas are mathematically related:

DSO = 365 ÷ AR Turnover Ratio

So in the example above:

365 ÷ 4.8 = 76 days DSO

If AR turnover increases, DSO falls — and cash flow improves.

Why the AR Turnover Ratio Matters

• Liquidity: Higher turnover signals cash is being collected promptly, reducing the risk of liquidity crunches.
• Working Capital: Efficient collections mean less cash is tied up in receivables, strengthening net working capital.
• Credit Risk: A declining turnover ratio can signal rising credit risk, poor collection practices, or customer stress.
• Investor Confidence: Analysts and lenders look at AR turnover as a proxy for the quality of a company's earnings.

Common Causes of Low AR Turnover

• Invoices sent late or with errors
• Weak credit screening for new customers
• Lack of structured collections process
• Long payment terms offered without discipline
• Customer disputes that drag on without resolution

These are the same issues that cause high DSO and poor free cash flow conversion.

How to Improve AR Turnover

Final Thoughts

The accounts receivable turnover ratio is a simple but powerful measure of how efficiently a company turns sales into cash. It is directly connected to DSO and free cash flow, making it a key KPI for finance teams.

By improving collections processes, monitoring turnover closely, and reducing DSO, companies can unlock cash, strengthen working capital, and reduce financial risk.

Want to improve your AR turnover ratio with AI-driven collections? Book a demo with our team.