Accounts Receivable Ratios

Managing cash flow is essential for a financially healthy business, and your accounts receivable ratios are among the most important metrics for assessing how efficiently your company collects payments. Whether you are a CFO, AR leader, controller, or finance executive, understanding these ratios helps you evaluate liquidity, credit policy strength, and collection performance.

What Is the Accounts Receivable Turnover Ratio?

The Accounts Receivable Turnover Ratio (ARTR) is a financial metric that measures how many times a company collects its average accounts receivable during a specific period, typically one year.

Simply put:

It shows how quickly customers pay you.
A high turnover ratio means you collect payments fast.
A low turnover ratio indicates slow collections or potential credit issues.

Why ARTR Matters

For AR teams and finance leaders, this is one of the core metrics used to evaluate accounts receivable performance.

Accounts Receivable Turnover Ratio Formula

Here is the correct and universally accepted formula:

AR Turnover Ratio = Net Credit Sales ÷ Average Accounts Receivable

Where:

Example Calculation

If:

Then:

Average AR = (180,000 + 220,000) ÷ 2 = $200,000
AR Turnover Ratio = 1,200,000 ÷ 200,000 = 6

Meaning:
Your company collects its receivables six times a year.

What Does the Accounts Receivable Turnover Ratio Tell You?

Another closely related metric is days sales outstanding, which shows the average number of days customers take to pay their invoices. While AR turnover focuses on frequency, days sales outstanding highlights time. Monitoring both helps businesses identify delays, forecast cash flow more accurately, and improve collection strategies.

Your ARTR provides actionable insights:

A High AR Turnover Ratio Means:

A Low AR Turnover Ratio Means:

In enterprise environments, a low AR turnover ratio often signals the need for:

Platforms like QuickReceivable automate collections, reminders, and credit workflows, naturally improving your accounts receivable turnover ratio.

How to Improve Accounts Receivable Turnover Ratio

Understanding how to improve accounts receivable turnover ratio starts with identifying why invoices are paid late. Common causes include billing errors, unclear payment terms, weak follow-ups, and unresolved disputes. By tightening credit policies and automating collections, businesses can accelerate payments and stabilize cash flow.

Businesses with slow-paying customers often experience unpredictable cash flow and higher carrying costs. Improving ARTR is essential.

Top ways to improve AR turnover:

1. Reduce billing errors

Invoice disputes are one of the biggest causes of delayed collection.

2. Send faster and more accurate invoices

Automated invoicing reduces lag.

3. Enforce consistent follow-ups

Automated workflows ensure no invoice is forgotten.

4. Strengthen credit policies

Ensure terms match customer payment behavior.

5. Offer multiple payment options

Credit card, ACH, customer portal, auto-pay, etc.

6. Automate the entire receivables cycle

Tools like QuickReceivable help achieve:

What Is the Accounts Receivable to Sales Ratio?

While AR turnover ratio measures speed, the Accounts Receivable to Sales Ratio measures proportion.

AR to Sales Ratio = Accounts Receivable ÷ Net Sales

This ratio shows how much of your revenue is tied up in unpaid invoices.

Example:

If:

Then:

$300,000 ÷ 1,500,000 = 0.20 (or 20%)

Interpretation:

This helps finance teams understand credit exposure and liquidity risk.

How AR Ratios Work Together (Turnover vs. AR-to-Sales Ratio)

These two metrics are powerful when combined:

Together, they show:

Tracking both gives a full picture of AR performance.

Finance leaders often compare accounts receivable turnover vs DSO to get a clearer view of collection performance. AR turnover shows how many times receivables are collected during a period, while DSO measures the average number of days it takes to collect payment. Together, these metrics explain both the speed and timing of cash inflows.

Why AR Ratios Matter for Finance Leaders

For CFOs, controllers, and AR leaders, these ratios help answer critical questions:

Modern AR automation tools like QuickReceivable offer dashboards that track:

This turns AR from a reactive function into a data-driven growth engine.

Benchmarks: What Is a Good Accounts Receivable Turnover Ratio?

Industry benchmarks differ, but general guidelines:

Excellent: 8–12+

(Strong collections, low bad debt, efficient AR processes)

Good: 6–7

(Average collection performance; room for optimization)

Below Average: 4–5

(Customers paying slow; credit practices may be weak)

Poor: Under 4

(Cash flow stress, high delinquency, collection issues)
Use industry standards for accurate comparisons:

Many finance teams ask what is considered a good accounts receivable turnover ratio for their business. In general, a higher turnover ratio indicates faster collections and healthier cash flow, while a lower ratio signals slow-paying customers. What qualifies as “good” depends on industry norms, customer payment terms, and billing accuracy, which is why benchmarking against peers is essential.

Common Mistakes in Calculating AR Ratios

Avoid these errors:

Using total sales instead of net credit sales
Ignoring seasonal spikes
Calculating with beginning or ending AR only
Failing to remove cash sales
Using inaccurate AR numbers due to billing errors
These mistakes can distort your KPIs and lead to incorrect decisions.

How QuickReceivable Improves AR Ratios Instantly

QuickReceivable helps companies improve their AR efficiency by automating:

Companies that adopt automated AR systems typically see:

Your AR ratios become more predictable, healthier, and easier to manage.

Frequently Asked Questions

Conclusion

The Accounts Receivable Turnover Ratio, AR Turnover Formula, Accounts Receivable to Sales Ratio, and overall AR measurement metrics provide essential insight into your company’s financial performance. These ratios show how quickly you convert sales into cash and how much revenue is tied up in unpaid invoices.

When used correctly, they guide better credit decisions, improve cash flow, and strengthen financial planning.

With tools like QuickReceivable, businesses can automate the entire receivable cycle, improve AR turnover, reduce disputes, and accelerate collections.