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Accounts Receivable Turnover

Accounts Receivable Turnover

What is Accounts Receivable Turnover?

Accounts receivable turnover is a financial ratio that measures how many times a company collects its average accounts receivable balance in a specific period. It indicates the efficiency of receivables management.

Introduction: The Accounts Receivable Turnover (ART) ratio is a crucial financial metric that evaluates how efficiently a company collects receivables from its customers. It measures the number of times a business can turn its accounts receivable into cash during a specific period, typically a fiscal year.

Importance: A high ART ratio indicates that a company is effective in collecting its debts and converting credit sales into cash swiftly, which is vital for maintaining healthy cash flow. Conversely, a low ART ratio might suggest issues with credit policies or problems with customer payments, potentially leading to cash flow constraints.


  • Net Credit Sales: The total revenue from sales made on credit, minus any returns or allowances.
  • Average Accounts Receivable: The average between the starting and ending accounts receivable balances for the period.
  • ART Ratio Formula: ART = Net Credit Sales / Average Accounts Receivable.

Strategies for Improvement:

  • Tighten Credit Policies: Implement stricter credit checks and terms to ensure customers have a strong payment history.
  • Enhance Collection Processes: Develop more aggressive collection strategies, such as earlier reminders and follow-ups on outstanding invoices.
  • Offer Early Payment Incentives: Provide discounts or other benefits to customers who pay their invoices early.

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