Accounts receivable turnover Ratio

Accounts receivable turnover indicates the average length of time it takes to collect on credit sales or the number of times that accounts receivable are collect each year. In general, the higher this number is the better. To high a accounts receivable turnover might mean the firm's credit policies are to restrictive and that the firm may be losing sales because of this tight policy. The opposite is also true, a low ratio number may indicate a loss of income through bad debts.

Accounts Receivable Turnover = Annual Credit Sales/Average Accounts Receivable