Accounts Receivable Turnover Calculator

How fast credit sales convert to cash

$960,000 in annual credit sales against $80,000 in average accounts receivable produces an AR turnover of 12.00 -- receivables are collected and replaced 12 times a year. That implies a collection period of 30.42 days, meaning customers pay, on average, about a month after the sale.

Turnover and collection days are inverses of the same relationship: turns = credit sales / average AR, and implied days = 365 / turns. A rising turnover ratio (falling collection days) over time signals faster-paying customers or tighter collections; a falling ratio signals collections are slowing down.

30.42 days lines up closely with a common net-30 payment term -- if your standard invoice terms are net-30 and this figure runs meaningfully higher, it's a signal that a portion of customers are paying late.

What belongs in each number

Credit sales / average AR. Cash sales do not belong in the numerator. Only sales made on credit terms should count -- if a meaningful share of revenue is cash or card-at-point-of-sale with no receivable created, including it in the numerator inflates the ratio and understates how slow credit customers actually are to pay.

Average AR should reflect the period, not a single day's balance -- (beginning AR + ending AR) / 2 is the standard approach, similar to how average inventory is calculated for the inventory turnover ratio.

If a specific number of days sales outstanding using a different window (like a trailing 90 days) is more useful than an annual figure, the Days Sales Outstanding Calculator lets you set the window directly.

Where this fits in cash-flow management

This is one half of the cash conversion cycle -- how fast cash comes in from sales -- paired against the Inventory Turnover Ratio Calculator for how fast cash goes out to inventory.

If collection days are running high specifically because of late payments, the Invoice Late Fee & Penalty Calculator models what enforcing a late-payment fee could look like.

Frequently Asked Questions (FAQ)