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Accounts Receivable Turnover
How efficiently a company collects payments from customers, measured by how many times receivables are collected annually.
Formula
AR Turnover = Net Credit Sales / Average Accounts Receivable
Days Sales Outstanding (DSO) = 365 / AR Turnover
Average AR = (Beginning AR + Ending AR) / 2
Definition
What is AR Turnover?
Accounts receivable turnover shows how quickly customers pay their invoices. Higher turnover means faster collection and healthier cash flow. Low turnover indicates collection problems or overly generous credit terms.
AR Turnover Interpretation
A turnover of 12 means customers pay monthly on average. 4x means quarterly payments. B2B SaaS companies often see 10-12x. Companies with Net-30 terms should target similar rates.
Improving AR Turnover
Tighten credit terms, require deposits, incentivize early payment, automate invoicing and reminders, and actively manage collections.
Example
SaaS company with enterprise clients:
- Annual Revenue: $1,200,000
- Beginning AR: $120,000
- Ending AR: $80,000
Average AR = ($120K + $80K) / 2 = $100,000
Turnover = $1.2M / $100K = 12x
DSO = 365 / 12 = 30 days average collection
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