What is Accounts Receivable Turnover?
Accounts receivable turnover is an efficiency ratio that measures how many times a business collects its average receivables balance during a period. A higher ratio indicates faster collection and tighter credit control; a lower ratio suggests slow collection and possible bad debt risk.
How It Works
- Calculate net credit sales for the period.
- Determine average accounts receivable (opening + closing balance / 2).
- Divide net credit sales by average accounts receivable to get the turnover ratio.
- Convert to days sales outstanding (DSO) by dividing 365 by the turnover ratio.
Saudi Context
Saudi B2B sellers monitor AR turnover and DSO as a core KPI. ZATCA’s bad debt relief allows VAT recovery on receivables uncollected after 12 months, so collection performance directly affects VAT cash flow. Tadawul-listed companies disclose DSO trends in their MD&A.
Example
A Saudi distributor has SAR 24 million credit sales and an average AR of SAR 4 million. AR turnover is 6 times, equivalent to DSO of about 61 days. Reducing DSO to 45 days would free roughly SAR 1 million in working capital.