receivables turnover

A measure of how quickly and efficiently a company collects on its outstanding bills. The receivables turnover ratio is calculated as net revenue divided by average receivables. It indicates how many times per period the company collects and turns into cash its customers’ accounts receivable. A high turnover compared to that of peers means that cash is collected more quickly for use in the company, but it’s important to analyze the turnover ratio in relation to the firm’s competitors. A very high receivables turnover ratio can also mean that a company’s credit policy is too stringent, causing the firm to miss out on sales opportunities. Alternatively, a low or declining turnover can signal that customers are struggling to pay their bills.