A low Accounts Receivable Turnover Ratio indicates difficulties collecting the money owed to you by your customers for products and services they have already received.
Correct for this by following an A/R collections process.
Overview
Accounts Receivable Turnover Ratio (ARTO) is an Efficiency Ratio that shows how efficiently a company collects its credit sales from customers, and it’s an indication of the quality of credit sales and receivables. The more quickly a company can collect cash from its customers, the faster they can use that cash to pay bills and meet other obligations.
ARTO measures how many times a business can turn its accounts receivable into cash during a given period. The greater the turnover, the shorter the period between sales and collections.
The formula for Accounts Receivable Turnover Ratio
Net Credit Sales / Average Accounts Receivable
A receivables turnover of 8 signals that, on average, receivables were fully collected eight times during the period or once every 46 days (365 ÷ 8).
Higher is Better: This means that the company is collecting its receivables more frequently throughout the year.
Lower is Worse: Indicates difficulties collecting monies owed to the company by its customers.