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Receivables Turnover

AnalyticsTrade Team
AnalyticsTrade Team Last updated on 26 Apr 2023

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Receivables Turnover

Receivables turnover is a financial ratio that measures the rate at which a company collects its accounts receivable. It is calculated by dividing the total sales for a period of time by the average accounts receivable balance during that same period. The higher the receivables turnover, the more efficiently a company is collecting its receivables. This ratio is important for companies to monitor, as it can indicate how well the company is managing its credit and collections process.

History of Receivables Turnover

The concept of receivables turnover has been around since the early 1900s. It was first used by banks to measure the liquidity of a company’s accounts receivable. Banks would use this ratio to determine how quickly a company was able to collect its receivables and how much of its receivables were uncollectible. Over time, the concept of receivables turnover has evolved and is now used by companies to measure the efficiency of their credit and collections process.

Comparison Table

Period Total Sales Average Accounts Receivable Receivables Turnover
1 Month $100,000 $20,000 5.0
3 Months $300,000 $30,000 10.0
6 Months $600,000 $40,000 15.0

Summary

Receivables turnover is a financial ratio that measures the rate at which a company collects its accounts receivable. It is calculated by dividing the total sales for a period of time by the average accounts receivable balance during that same period. The higher the receivables turnover, the more efficiently a company is collecting its receivables. This ratio is important for companies to monitor, as it can indicate how well the company is managing its credit and collections process. For more information about receivables turnover, you can visit websites such as Investopedia, The Balance, and AccountingTools.

See Also

  • Accounts Receivable
  • Days Sales Outstanding (DSO)
  • Average Collection Period
  • Accounts Receivable Aging
  • Credit Risk
  • Credit Terms
  • Credit Limit
  • Credit Score
  • Credit Card
  • Credit Report

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