About Accounts Receivable Turnover Ratio Calculator (Formula)
An Accounts Receivable Turnover Ratio Calculator is a financial tool used by businesses to evaluate how efficiently they collect payments from customers. The accounts receivable turnover ratio measures the effectiveness of a company’s credit and collection policies by assessing how quickly it converts its accounts receivable (money owed by customers) into cash during a specific period. The formula for calculating the accounts receivable turnover ratio is as follows:
Accounts Receivable Turnover Ratio (ART) = Net Credit Sales / Average Accounts Receivable
Where:
- Accounts Receivable Turnover Ratio (ART) is the calculated ratio that represents how many times a company’s accounts receivable are collected and replaced in a specific time period.
- Net Credit Sales are the total sales made on credit (on account) during the given period, minus any sales returns or allowances.
- Average Accounts Receivable is the average amount of money owed by customers during the same period, typically calculated by adding the accounts receivable at the beginning and end of the period and dividing by 2.
A higher accounts receivable turnover ratio generally indicates that a company is collecting payments more quickly, which is a positive sign of effective credit management. Conversely, a lower ratio may suggest issues with collection efficiency or overly lenient credit policies.
Accounts Receivable Turnover Ratio Calculators are essential for businesses to assess their financial health and make informed decisions about credit management and customer relationships. By regularly calculating this ratio, companies can identify areas for improvement in their credit and collection processes, optimize cash flow, and ensure the timely receipt of payments from customers.