Introduction
Receivables Turnover measures how many times per year a company collects its accounts receivable. A high turnover = company gets paid quickly; low = slow collections.
Explanation
If a company has Terms Net 30 (customer pays in 30 days) and is compliant, Receivables Turnover will be ~12× (30 days × 12 months = 365 days). Turnover < 12× indicates slower collections than terms.
Formula
Receivables Turnover = Annual Revenue / Average Accounts Receivable
Example
B2B vs Retail Software: - Software: Revenues $100M, Receivables $10M → Turnover = 10× (36.5 days DSO) - Amazon: Revenue $500B, Receivables $30B → Turnover = 16.7× (22 days DSO)
How to read it
Turnover > 12× = efficient collections. 6-12× = moderate (typical B2B). < 6× = slow collections, possible problems. Declining Receivables Turnover = customers take longer to pay, a sign of credit or collection problems. Amazon has high turnover because B2C gets paid immediately. Red flag: turnover falling from 12× to 6× = deterioration in customer quality.
Key takeaways
- Receivables Turnover = Revenue / Receivables
- Measures collection speed
- Turnover > 12× = efficient
- Turnover < 6× = slow collections
- Declining = customers take longer to pay
- B2C has much higher turnover than B2B