![]() ![]() The AR turnover for the company is 12, meaning on average, the company collected outstanding debts 12 times by the end of the year. So, here’s how you’d calculate the AR turnover:ĪR Turnover in 2022 = $600,000 (net credit sales) / $50,000 (average accounts receivable) = 12 number of times The average accounts receivable for the same accounting period was $50,000. Let’s say a company had net credit sales of $600,000 in 2022. On the flip side, a low ratio might be a cue to ramp up your collections process or tune your credit policy so customers make payments on time. In SaaS, this could mean the subscription has been signed for a given period, but the payment is still pending.Ī higher AR turnover means your cash flow is steady and reliable. Net credit sales refers to the revenue generated from sales on credit, which means the customer has committed to make the payment, but the money has not yet been received. By indicating whether the credit terms are too lenient or strict, AR turnover allows the management to make informed decisions to optimize credit policies.įinance and accounting teams that align on the insights behind a metric like AR turnover are able to optimize the financial health of their businesses and make strategic recommendations for operational improvements.ĪR Turnover = Net Credit Sales / Average Accounts Receivable ![]() In these scenarios, AR turnover can help SaaS finance teams understand the effectiveness of the company’s ability to collect timely payments and its credit policies. In that case, a significant delay in payments can leave the company in a cash crunch, unable to allocate resources toward planned projects, and uncertain about its future. By understanding AR turnover, companies can quickly spot operational inefficiencies, cash flow shortages, and customer payment behavior.įor example, suppose customers don’t settle their bills on time. This is where AR turnover comes into play, as the metric sheds light on a company’s credit and collections processes. For any business, having a steady stream of cash coming in is key to keeping operations running smoothly. ![]()
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