A ratio measuring how efficiently a business collects its receivables. Calculated by dividing net credit sales by average accounts receivable.
Accounts receivable turnover indicates how many times per year a company collects its average receivable balance. A higher ratio means faster collection, improving cash flow. To calculate: divide net credit sales by the average AR balance for the period. For example, $1,000,000 in credit sales with an average AR balance of $100,000 gives a turnover ratio of 10 - meaning you collect your average receivables 10 times per year. The related metric, days sales outstanding (DSO), is calculated as 365 divided by the AR turnover ratio. In this example, DSO would be 36.5 days. Monitoring these metrics helps identify collection problems early. A declining turnover ratio suggests customers are taking longer to pay. SortBooks tracks your AR turnover in real-time and alerts you when collection patterns deteriorate.
SortBooks automates the bookkeeping processes related to accounts receivable turnover by connecting to your Xero account and using AI to categorise transactions, reconcile bank feeds and generate accurate reports. Instead of manually managing accounts receivable turnover, SortBooks handles it automatically with 97%+ accuracy - saving you hours every week and ensuring your books are always up to date and compliant.
Accounts receivable (AR) is the money owed to your business by customers who have purchased goods or services on credit. It is a current asset on your balance sheet.
An ageing report categorises accounts receivable or accounts payable by the length of time invoices have been outstanding, typically in 30-day buckets (current, 30, 60, 90+ days).
Cash flow is the movement of money in and out of your business. Positive cash flow means more money coming in than going out. It is often considered more important than profit for business survival.
Payment terms specify when payment is expected from a customer. Common terms include payment on receipt, net 7, net 14 and net 30 (meaning payment due within that many days).
Turnover is the total revenue or sales of a business over a specific period. In some contexts, it also refers to how quickly inventory or assets are converted to sales.
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