What is Receivables Turnover Ratio?
The receivables turnover ratio is calculated as net credit revenue divided by average accounts receivable, indicating how many times during a period the business collects and reissues its average receivables balance.
How It Works
- Formula: receivables turnover = net credit revenue / average accounts receivable.
- DSO = 365 / receivables turnover (days sales outstanding).
- Higher turnover indicates faster collections and tighter credit control.
- Benchmarked against industry norms and own historical trend.
Saudi Context
Saudi B2B sellers granting 30 to 60 day credit terms typically post receivables turnover of 6x to 12x (DSO 30 to 60 days), while government contractors run lower at 3x to 5x (DSO 75 to 120 days). The Saudi Government Procurement Law’s 30-day SME payment rule is helping improve this for smaller suppliers.
Example
A Saudi distributor has SAR 40,000,000 credit revenue and SAR 5,000,000 average receivables. Receivables turnover = 40,000,000 / 5,000,000 = 8x. DSO = 365 / 8 ≈ 46 days.