How this calculator works
Use net credit sales after returns and allowances, excluding cash sales. Average the opening and closing receivables, or enter a more representative average if monthly balances are available. Match the sales period to the balance dates. The ratio is times per period, not a percentage. A zero average balance cannot support a turnover calculation.
Formula
Average receivables = (opening + closing) / 2. Receivables turnover = net credit sales / average receivables. Credit sales = turnover * average receivables.
Worked example
Opening receivables of $40,000 and closing receivables of $60,000 average $50,000. Net credit sales of $400,000 give turnover of 8 times. Sales of $90,000 over an average balance of $30,000 give 3 times.
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Frequently asked questions
Can I use total sales?
Use credit sales when available. Including cash sales overstates how quickly receivables are being turned over.
Is higher always better?
Fast collection can help liquidity, but restrictive credit terms can also reduce sales. Compare with payment terms and similar firms.
How do I convert turnover to days?
Divide the number of days in the reporting period by turnover. The average collection calculator performs that conversion.