Calculate your accounts receivable turnover ratio and days sales outstanding (DSO). Measure how efficiently your business collects payments from credit customers.
Annual credit sales after returns
AR Turnover Ratio
10.00x
Days Sales Outstanding
36.5 days
Average AR
$50,000.00
Excellent collection efficiency — you collect receivables very quickly.
37 days
average collection period
37 days
average time to collect payment
Daily Collections Rate
$1,370
Average revenue collected per day
AR as % of Sales
10.0%
Efficient collection process
Collection Effectiveness
A
Above average performance
Current
37 days
DSO
10% Faster
33 days
DSO
+$5,000
cash freed up
20% Faster
29 days
DSO
+$10,000
cash freed up
Insight: Reducing DSO by 10% would free up approximately $5,000 in cash, improving liquidity and reducing the need for external financing.
Note: This is a typical distribution based on your 37-day DSO. Actual aging may vary. Focus on collecting 31-60 day invoices to improve cash flow.
Accounts receivable turnover is a key efficiency ratio that shows how well a business manages its credit sales and collections. A high turnover ratio means the company collects payments quickly, improving cash flow and reducing the risk of bad debts. Days Sales Outstanding (DSO) converts this ratio into an easy-to-understand number of days, making it simple to track collection performance over time or compare against industry standards.
Accounts receivable turnover measures how many times per year a business collects its average accounts receivable. It's calculated by dividing net credit sales by average accounts receivable. A higher ratio indicates faster collection.
DSO is the average number of days it takes to collect payment after a sale. It's calculated as 365 divided by the AR turnover ratio. Lower DSO means faster collections and better cash flow management.
A good ratio varies by industry. Generally, a ratio above 10 is excellent, 5-10 is good, and below 5 may indicate collection issues. Compare your ratio to industry benchmarks for the most meaningful assessment.
Strategies include offering early payment discounts, tightening credit policies, sending invoices promptly, following up on overdue accounts, and using automated billing and collection systems.
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