Related: What Is Accounts Receivable Turnover? Why use the receivables turnover ratio? Dividing these two values gives you the receivables turnover ratio. The average receivables value is the average amount the receivables account collects in the same period. ![]() In the formula, the net credit sales value represents the total amount of credit sales your company makes over a specific period. (Receivables turnover ratio = Net sales on credit / Average receivables) To find receivables turnover, apply the formula: This accounting metric is also an important indicator of how effectively companies manage customer credit accounts, as the ratio provides insight into whether companies extend too much credit. If your company lets customers make large purchases on credit, the receivables turnover ratio is an effective metric for evaluating how quickly the company collects on extended credit and short-term payments. The accounts receivables turnover ratio measures a business's ability to collect on payments its customers owe for products or services. In this article, we explore what the receivables turnover ratio is, why it's an effective metric to use and how to calculate it, with examples to help you apply the formulas. This ratio measures the average rate at which companies collect payments due from clients and can tell you about profitability. ![]() While it's beneficial to allow customers to purchase products and services on credit, it can affect the receivables turnover ratio. ![]() When companies extend credit to customers, they collect payments from accounts receivable. Receivables turnover ratio = (Net sales on credit / Average receivables)
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