What is the accounts receivable turnover ratio?

The accounts receivable turnover ratio measures how many times a business collects its full average receivables balance over a given period, usually a year. The formula is net credit sales divided by average accounts receivable. A higher ratio means the business is collecting faster, a lower ratio means cash is sitting in AR longer.

The turnover ratio and DSO are two ways of looking at the same thing. DSO tells you the average number of days it takes to collect; turnover tells you how many collection cycles fit into the year. A turnover ratio of 12 corresponds roughly to a DSO of 30, while a turnover ratio of 6 corresponds to a DSO of about 60.

Lenders and investors lean on turnover ratio when comparing businesses across different revenue scales, because it normalizes for size. For day-to-day operations, DSO is usually easier to act on, but the turnover ratio is a useful check at the quarterly or annual level, especially when benchmarking against industry averages published by analysts and trade groups.