How many times per year you collect your average receivables balance. Higher is better — it means cash is flowing in faster.
Accounts receivable turnover measures how efficiently you collect payments from customers. It's expressed as a ratio: the number of times your average accounts receivable balance is collected during a period (usually a year). A higher number means you're collecting faster.
It's the flip side of days sales outstanding (DSO). While DSO tells you the average collection time in days, AR turnover tells you how many collection cycles you complete per year. They're two ways of looking at the same thing.
Money sitting in receivables is money you can't use. A low turnover ratio means cash is stuck in your clients' accounts instead of yours. That forces you to rely on credit lines, savings, or other funding just to cover normal operating expenses — even when your business is profitable.
Tracking turnover over time reveals whether your collection process is getting better or worse. A declining ratio usually means one of three things: you're extending longer payment terms, your collection follow-up is slipping, or your clients are in financial trouble and paying slower.
The ratio also differs meaningfully by industry. A B2B software company billing on net-30 terms might have a turnover of 12 (collecting every 30 days). A construction company dealing with retainage and slow-paying general contractors might be at 4-6. What matters is your trend and how you compare to your specific industry.
Example: An IT services firm does $2.4M in annual credit sales. Average AR balance throughout the year is $300K. AR turnover = $2.4M / $300K = 8. They collect their average balance 8 times per year, or roughly every 45 days. If they tightened terms and improved follow-up, getting AR down to $200K, turnover jumps to 12 — collecting every 30 days instead.
AR Turnover = Net Credit Sales / Average Accounts Receivable
Average AR is typically (beginning AR + ending AR) / 2 for the period. Use net credit sales (not total revenue) — exclude cash sales since those don't pass through receivables.
To convert to days: 365 / AR Turnover = Average collection period in days (this gives you DSO).
CentSight calculates your AR turnover ratio automatically from your invoicing and payment data. It breaks down turnover by client, so you can see which accounts are collecting on time and which are dragging your average down. CentSight also tracks the trend over time and alerts you when the ratio drops, giving you early warning to tighten collections before cash flow suffers.
CentSight monitors AR turnover by client and over time, so you always know how efficiently you're collecting.
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