Accounts Receivable Turnover Ratio

The formula
Converting turnover to days

Accounts receivable turnover is the number of times in a period that your business collects its average accounts receivable balance, the money customers owe you on invoices. You find it by dividing net credit sales by average accounts receivable. A higher number means invoices are collected faster. Dividing 365 by the turnover converts it into the average number of days it takes to collect.

Billed publishes this page. The formulas and definitions are quoted from the open textbook OpenStax Principles of Accounting, Volume 1, opened on October 29, 2026. The worked example uses invented figures.

The formula

From OpenStax's chapter summary: "The ratio is found by taking net credit sales and dividing by average accounts receivable for the period."

Accounts receivable turnover = Net credit sales ÷ Average accounts receivable

Average accounts receivable = (Beginning accounts receivable + Ending accounts receivable) ÷ 2

What goes in each part:

Net credit sales: sales made on credit, after returns and allowances. OpenStax says "Net credit sales are sales made on credit only; cash sales are not included because they do not produce receivables." It adds that if a company doesn't report credit sales separately from cash sales, net sales may be used instead.
Beginning and ending accounts receivable: the balances customers owed you at the start and the end of the period. OpenStax notes: "The beginning accounts receivable balance is the same figure as the ending accounts receivable balance from the prior period."

Converting turnover to days

OpenStax calls this the number of days' sales in receivables ratio. It "shows the expected number of days it will take to convert accounts receivable into cash", and "The ratio is found by taking 365 days and dividing by the accounts receivable turnover ratio."

Days' sales in receivables = 365 ÷ Accounts receivable turnover

OpenStax adds that because the turnover uses an average receivables figure, "the outcome for the days' sales in receivables is also an average number."

Worked example (sample figures)

A sample consulting firm, invented for this example, looks at last year:

Invoices issued on credit: $366,000
Credit notes issued to clients for returns and allowances: $6,000
Accounts receivable on January 1: $40,000
Accounts receivable on December 31: $50,000
Payment terms on its invoices: 30 days

Step 1: net credit sales. $366,000 − $6,000 = $360,000.

Step 2: average accounts receivable. ($40,000 + $50,000) ÷ 2 = $90,000 ÷ 2 = $45,000.

Step 3: turnover. $360,000 ÷ $45,000 = 8 times.

Step 4: days. 365 ÷ 8 = 45.625, about 45.6 days.

Step 5: compare with the terms. On average, the firm takes about 45.6 days to collect on 30-day invoices, roughly 15.6 days beyond its terms. That's a reason to look at which invoices are paid late, not a verdict on its own.

How to read the result

OpenStax says "A higher number of times indicates that receivables are collected quickly", while a lower number "indicates that receivables are collected at a slower rate." It notes that a slower rate can mean "the company has cash tied up in receivable longer."

There's no single good number. Compare your result with:

your payment terms: days well above your terms mean clients pay late on average;
your own past periods: whether the ratio is rising or falling;
businesses like yours, if you can find comparable figures. OpenStax describes stakeholders looking at ratios "for trends, industry comparisons, and past performance".

Things that can distort the ratio

Cash sales included in sales: they raise the numerator without adding receivables, so the turnover looks higher than collections really are.
Seasonal balances: if the beginning and ending balances fall in quiet months, the average can understate what customers owe through the year.
One large customer: a single big invoice paid early or late can move the ratio for the whole business.
A change in sales: if sales fall sharply, turnover can rise even though collections haven't improved. Read it alongside an aging report.

How to collect faster

The ratio tells you how fast you collect; these habits are what change it:

Invoice as soon as the work is done, so the due date isn't pushed back by a late invoice.
State a due date and clear terms on every invoice. See invoice payment terms explained.
Make paying easy, with more than one way to pay.
Send reminders before and after the due date.
Review overdue invoices by age each month. The invoice aging calculator totals open invoices by how long they're past due.

Where Billed fits

Your accounts receivable is the total of the invoices clients haven't paid yet. Billed's invoice software page says: "Set a due date on each invoice so your client knows when to pay. Invoice reports show which invoices are paid, partially paid or past due, and you can see who owes you money and send them a payment reminder. Payment reminders can be customized."

When this guide isn't for you

If you need receivables ratios for a loan application, audited accounts or a business valuation, ask your accountant which sales and balances to use, as lenders and auditors may define them differently.

Frequently Asked Questions

What is the accounts receivable turnover formula?

Accounts receivable turnover equals net credit sales divided by average accounts receivable. Average accounts receivable is the beginning balance plus the ending balance, divided by two.

How do I convert accounts receivable turnover into days?

Divide 365 by the turnover. In this page's sample, a turnover of 8 gives 365 ÷ 8 = 45.6 days, the average time it takes to collect an invoice.

What is a good accounts receivable turnover ratio?

There's no single good number. Compare the days figure with your payment terms, with your own past periods and, where you can, with similar businesses. A higher turnover means you collect faster.

Can I use total sales instead of credit sales?

The textbook formula uses net credit sales, because cash sales don't create receivables. If your records don't separate credit sales from cash sales, OpenStax says net sales may be used instead, but the result will look faster than your collections really are.

Why would accounts receivable turnover go down?

A lower turnover means receivables are being collected more slowly. Clients may be paying later, invoices may have gone out late, or receivables may have grown faster than sales. Review your overdue invoices by age to find which accounts are driving it.

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What Is Accounts Receivable Turnover? Formula and Example