Receivables Turnover
Receivables Turnover
Sales divided by average accounts receivable. Measures how many times receivables turn over per year — the annual-rate counterpart to DSO.
When to use: Use to gauge collections efficiency. Higher turnover = faster collection = less working capital tied up. Pairs with DSO; choose whichever frame is more intuitive for the audience.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| RecTurn | Receivables Turnover | Sales ÷ average receivables | integer |
| Sales | Annual Net Credit Sales | Net credit sales over the year; total sales are a proxy only if credit sales are unavailable and the limitation is stated | $ |
| Receivables | Accounts Receivable | Average accounts receivable balance | $ |
Real-Life Examples
Example 1: B2B Software Firm
Annual sales $300M, average receivables $40M.
Given
Step-by-Step
Receivables turn 7.5 times per year — equivalent to DSO ≈ 49 days. Whether this is "good" depends on industry: software with net-30 terms should run higher; project-based services often run lower.
Frequently Asked Questions
Reciprocals scaled by 365. DSO = 365 / RecTurn; RecTurn = 365 / DSO. Same information, different frame.
Averaging beginning and ending balances smooths out year-end timing distortions (a big customer paying just before or after year-end can swing ending receivables substantially without reflecting average behavior).