Receivables turnover ratio
What is receivables turnover ratio?
This is a calculation used in accounting. Its main function is to measure how effective a company is in extending its credit and collecting debts.
Where have you heard of receivables turnover ratio?
You might have heard of it being called the debtor’s turnover ratio. It’s widely used in business to measure how efficiently a company is using its assets.
What you need to know about receivables turnover ratio.
It’s usually worked out on an annual basis, but this can also be broken down to produce a monthly or quarterly figure. To calculate the receivables turnover ratio, accountants divide the net value of credit sales during a set period by the average accounts receivable during the same period. Once it’s been calculated, this ratio shows how efficiently a firm manages the credit it has issued to its customers and collects on that credit.