accounts receivable turnover

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Accounts receivable turnover

The ratio of net credit sales to average accounts receivable, which is a measure of how quickly customers pay their bills.
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Accounts Receivable Turnover

The average amount of time it takes for a business to collect on its accounts receivable. This is calculated by multiplying the amount in accounts receivable by the number of days in a given period and dividing into the total amount of credit sales. Accounts receivable turnover is a way to determine how a business' credit risk compares to that of its competitors.
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accounts receivable turnover

The number of times in each accounting period that a firm converts credit sales into cash. A high turnover indicates effective granting of credit and collection from customers by the firm's management. Accounts receivable turnover is calculated by dividing the average amount of receivables into annual credit sales. Also called receivables turnover. See also activity ratio, collection period.
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References in periodicals archive ?
The 2005 D&B report showed an average collection period of 33.6 days from invoice date for businesses in the 25th percentile in that industry; 44.8 days from invoice date for such businesses in the 50th percentile, and 69.7 days from invoice date for such businesses in the 75th percentile.
Besides keeping track of which customers are behind and by how much, you should be aware of your average collection period - accounts receivable divided by sales per day.
But when you sit down and think about it, you may find that the average collection period is closer to 60 days.
Accurately knowing your average collection period is crucial to any foundry, since financing accounts receivable can be a significant drain on working capital.
As a rule, the shorter the average collection period, the more likely your customers will pay.
It is good practice to calculate your average collection period once a month and consider it a key barometer of financial health.
However, it's important to remember that the average collection period doesn't tell the whole story.
Once you know your average collection period and have recognized the trouble spots, you should set up a more efficient collection system.