How it works
Accounts receivable turnover measures how many times per year you collect your average outstanding receivables. An AR turnover of 12 means you collect every dollar of receivables roughly once a month — translating to about 30 days sales outstanding (DSO). The formula divides net credit sales by average accounts receivable, then converts the ratio into DSO by dividing 365 by the turnover. DSO is the number most managers watch: it tells you, on average, how many days elapse between making a sale and receiving cash. A DSO of 30 means the average customer pays in 30 days; a DSO of 60 means you are waiting two months for every dollar. The gap between your DSO and the industry average represents cash sitting uncollected — cash that could fund operations, pay suppliers, or earn interest. The calculator estimates the dollar amount of that tie-up so you can quantify the cost of slow collections.
Formula
AR turnover = Net credit sales ÷ Average AR | DSO = 365 ÷ AR turnover | Tied-up cash = Average AR
Tips
- Track DSO monthly to catch collection problems early — a rising trend is an early warning.
- Offer 2/10 net 30 terms to incentivize early payment and reduce DSO.
- Segment DSO by customer to identify slow payers who need follow-up.
- Compare DSO against your own payment terms — if terms are net 30 but DSO is 52, collections are lagging.
Frequently asked questions
- What is a good accounts receivable turnover ratio?
- A ratio above your industry average is healthy. For most B2B businesses, 8–12x per year (30–45 days DSO) is normal. Retail with mostly cash/card sales runs much higher at 15–25x. The key metric is whether your DSO matches or beats your stated payment terms.
- What does days sales outstanding (DSO) mean?
- DSO measures the average number of days between making a credit sale and collecting payment. A DSO of 35 means it takes 35 days on average to collect. Lower DSO means faster cash collection; higher DSO means more cash is locked in unpaid invoices.
- How do I improve my AR turnover?
- Invoice promptly (same day), offer early-payment discounts, follow up on overdue accounts within 3 days, tighten credit terms for slow payers, use automated payment reminders, and consider requiring deposits for large orders.
- Should I include cash sales in AR turnover?
- No — AR turnover should use only credit sales, since cash sales do not create receivables. Including them artificially inflates your ratio and masks collection problems. Net credit sales give the truest picture of how well you collect.