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How do you calculate Accounts Receivable Turnover?

Matt Treat's Profile

I know the basic formula (Credit Sales/Average Receivable Balance), but how does your company calculate it? Do you use total sales instead of just credit? Have you found the right balance yet?

Answers

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Matt
Do a search here on "DSO" - there are at least 3 prior discussions in the forum.
If your sales include significant cash sales, then don't include cash sales in your total sales $ number.
I tend to prefer the "reducing days" method where each month's sales = 30 days AR and you start with total AR, first deduct latest month sales (=30 days), if a remainder, then deduct prior month sales (if that wipes out the remainder AR balance, then your result is <30 days additional).
Regards
Len

James Scott
Title: Consulting CFO
Company: Early Growth Financial Services
LinkedIn Profile
(Consulting CFO, Early Growth Financial Services) |

Look at best or most common practice in your industry, and strongly consider using that. Normally use all sales for last quarter, not last 12 months or longer period that may not be relevant to current operations.

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