1. What is AR Turnover?

The Accounts Receivable Turnover ratio measures how efficiently a company collects credit sales from customers. It shows how many times a company collects its average accounts receivable balance during a period.

2. How Does the Calculator Work?

The calculator uses the AR Turnover formula:

Where:

• Net Credit Sales — Total credit sales minus returns and allowances
• Average Accounts Receivable — (Beginning AR + Ending AR) / 2

Explanation: A higher ratio indicates more efficient collection of receivables, while a lower ratio suggests collection problems.

3. Importance of AR Turnover

Details: This ratio helps businesses assess their credit policies and collection efficiency. It impacts cash flow and working capital management.

4. Using the Calculator

Tips: Enter net credit sales and average accounts receivable in dollars. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good AR turnover ratio?
A: It varies by industry, but generally higher is better. A ratio of 10-12 is typical for many businesses.

Q2: How often should I calculate AR turnover?
A: Most businesses calculate it quarterly or annually to monitor trends.

Q3: What if my ratio is too low?
A: A low ratio may indicate poor collection processes, lax credit policies, or customer financial problems.

Q4: Can AR turnover be too high?
A: Extremely high ratios might suggest overly strict credit policies that could be limiting sales.

Q5: How does this relate to days sales outstanding (DSO)?
A: DSO = 365 / AR Turnover. They measure the same thing but in different units (days vs. turns per year).