What it is:

This number indicates how quickly customers are paying your business. The greater the number of times receivables turn over during the year, the shorter the time between sales and cash collection.

When to use it:

Receivables turnover is a good way to gauge the effectiveness of your company's payment terms. If this number is low compared to the industry average, it may mean your payment terms are too lenient or that you are not doing a good enough job on collections. By tracking this figure monthly or quarterly, using total credit sales instead of net sales, you can uncover any changes in collections trends. Use this ratio in conjunction with average collections period.

The formula:

Net sales divided by receivables.

Calculate your receivables turnover ratio:

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