What is the Account Receivable Turnover?

Turnover is a calculation of how fast a firm conducts its operations. It is generally used to determine how fast a firm sells off their inventory and take money from their account receivable. 

A company's total revenue can also be referred to as its overall turnover.

The Receivables Turnover Ratio demonstrates how many times receivables are collected in a given period. 

Receivables turnover ratio = Credit sales/Average accounts receivable

Let us assume that credit sales are not immediately paid in cash, then we can say that the account receivable turnover formula is the volume of credit sales per average account receivable.

Here, the average account receivable is the median receivable balances in a given period. Account receivable turnover evaluates your payments rates compared to credit sales. The general idea of this formula is to maximize sales and reduce credit sales so as to avoid debt or to increase profit. 

A company with $20,000 in credit sales and $5000 in paid purchases is said to have a turnover rate of four using the average account receivable formula.

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