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' AI CFO can show you who owes you money and how your receivables are trending, using live Xero data.
SortBooks helps with the bookkeeping behind accounts receivable turnover by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing accounts receivable turnover by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
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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