The document discusses the receivables turnover ratio as a metric to evaluate how effectively a company manages its accounts receivable, with optimal industry values between 9 and 10. It highlights the correlation between this ratio and days sales outstanding (DSO), emphasizing techniques for improving the ratio such as implementing standard payment terms and electronic invoicing. The author shares their personal experience tracking these metrics over time, resulting in improved financial management and operations.

1. Brief Discussion on Receivables
Turnover Ratio
The receivables turnover ratio is just that, a measure of how many times your receivables turn over each
year. Some of the best in industry have ratios between 9 and 10. Below that and you are spending too
much on financing. Above that and you are spending too much on receivables management.
If your Receivables Turnover Ratio is 9, for example, your Accounts Receivables “turn over” roughly 9
times annually. This correlates to about 40 days (# of Days in one year/Ratio OR 365/9 = 40). The days
calculation means that every dollar that reaches the Receivables account will stay there for that many
number of days before it is collected and deposited into the bank. (36 days with a ratio of 10.) The Days
calculation can also be referred to as Days Sales Outstanding or DSO. As your receivables ratio increases
your # of Days Sales Outstanding decreases.
This was something I began tracking at a company I worked for where I was managing the A/R. What I
would do is take a reading each month. I would always use data from the 12 months leading up to that
day I was taking the reading for. For example if it was January 1, 2012 and we just closed December
2011, the data I would use was January 2011 – December 2011. This would give me the Receivables
Turnover Ratio and DSO for the entire year 2011. In February of 2012, I would use data from February
2011 – January 2012 to incorporate the new month. I would always track the ratio and the correlating
number of days on a Chart in Excel so I could see my progress. When I started tracking the data, I felt
the DSO was too high, too far away from industry targets or optimum values. Therefore, I began figuring
out ways to reduce the average number of days dollars would remain in the Receivables Account. Or in
other words, figuring ways to increase our Receivables Turnover Ratio. Through my collection and
organizational efforts I was able to reach more optimum values for the company.
The primary ways I was able to achieve my goals was through several methods:
 Employing standard terms of Net 30
 Moving customers to pay electronically (ACH transfers, deposit direct to bank checking
account)
 Electronic delivery of invoices
 Better review of the Purchaser Order (or Contract) prior to acceptance of the Purchase
Order
 Better processes in transferring orders to invoices to decrease errors
 Better processes in billing the customer
 Creating new reports allowing more immediate tracking of unpaid invoices that exceeded
due date and/or days’ target
Below is a very brief summary of how I was tracking the Receivables Turnover Ratio and Days Sales
Outstanding values at this company. The data has been completely fabricated for the purpose of this
analysis. One of the lessons I learned in doing this is that there is intrinsic value in quantitative surety.

2. 2010
Month January February March April May June
Period Begin 1/1/2009 2/1/2009 3/1/2009 4/1/2009 5/1/2009 6/1/2009
Period End 12/31/2009 1/31/2010 2/28/2010 3/31/2010 4/30/2010 5/31/2010
Average A/R Balance
Period Start A/R Balance $513,056 $500,961 $509,273 $485,323 $498,804 $491,972
Period End A/R Balance $469,958 $458,879 $466,493 $444,555 $456,904 $450,645
Period Average $491,507 $479,920 $487,883 $464,939 $477,854 $471,308
Receivables Turnover Ratio
Period Net Credit Sales** $4,000,000 $4,000,000 $4,000,000 $4,000,000 $4,000,000 $4,000,000
Period Average A/R Balance $491,507 $479,920 $487,883 $464,939 $477,854 $471,308
Ratio 8.14 8.33 8.20 8.60 8.37 8.49
Days In Period
Period Start 1/1/2009 2/1/2009 3/1/2009 4/1/2009 5/1/2009 6/1/2009
Period End 12/31/2009 1/31/2010 2/28/2010 3/31/2010 4/30/2010 5/31/2010
# of Days in Period 364 364 364 364 364 364
Days Sales Outstanding (DSO)
# of Days in Period 364.00 364.00 364.00 364.00 364.00 364.00
Receivables Turnover Ratio 8.14 8.33 8.20 8.60 8.37 8.49
Days Sales Outstanding (DSO) 44.73 43.67 44.40 42.31 43.48 42.89
Month July August September October November December
Period Begin 7/1/2009 8/1/2009 9/1/2009 10/1/2009 11/1/2009 12/1/2009
Period End 6/30/2010 7/31/2010 8/31/2010 9/30/2010 10/31/2010 11/30/2010
Average A/R Balance
Period Start A/R Balance $478,852 $498,804 $478,852 $472,552 $466,415 $460,435
Period End A/R Balance $438,627 $456,904 $438,627 $432,856 $427,235 $421,757
Period Average $458,740 $477,854 $458,740 $452,704 $446,825 $441,096
Receivables Turnover Ratio
Period Net Credit Sales* $4,000,000 $4,000,000 $4,000,000 $4,000,000 $4,000,000 $4,000,000
Period Average A/R Balance $458,740 $477,854 $458,740 $452,704 $446,825 $441,096
Ratio 8.72 8.37 8.72 8.84 8.95 9.07
Days In Period
Period Start 7/1/2009 8/1/2009 9/1/2009 10/1/2009 11/1/2009 12/1/2009
Period End 6/30/2010 7/31/2010 8/31/2010 9/30/2010 10/31/2010 11/30/2010
# of Days in Period 364 364 364 364 364 364
Days Sales Outstanding (DSO)
# of Days in Period 364.00 364.00 364.00 364.00 364.00 364.00
Receivables Turnover Ratio 8.72 8.37 8.72 8.84 8.95 9.07
Days Sales Outstanding (DSO) 41.75 43.48 41.75 41.20 40.66 40.14
* Period Year over

3. 9.20
9.07
9.00 8.95
8.84
8.80
8.72 8.72
8.60
8.60
8.49
8.37 8.37
8.40 8.33
8.20
8.20 8.14
8.00
January March May July September November
45.50
45 50
44.7
44.4
44.50
43.7
43.5 43.5
43.50
42 9
42.9
42.50 42.3
41.7 41.7
41.50 41.2
40.7
40.50 40.1
39.50
January March May July September November

4. 2011
Month January February March April May June
Period Begin 1/1/2010 2/1/2010 3/1/2010 4/1/2010 5/1/2010 6/1/2010
Period End 12/31/2010 1/31/2011 2/28/2011 3/31/2011 4/30/2011 5/31/2011
Average A/R Balance
Period Start A/R Balance $524,291 $528,146 $544,150 $536,029 $528,146 $520,492
Period End A/R Balance $480,249 $483,780 $498,440 $491,001 $483,780 $476,769
Period Average $502,270 $505,963 $521,295 $513,515 $505,963 $498,630
Receivables Turnover Ratio
Period Net Credit Sales* $4,800,000 $4,800,000 $4,800,000 $4,800,000 $4,800,000 $4,800,000
Period Average A/R Balance $502,270 $505,963 $521,295 $513,515 $505,963 $498,630
Ratio 9.56 9.49 9.21 9.35 9.49 9.63
Days In Period
Period Start 1/1/2010 2/1/2010 3/1/2010 4/1/2010 5/1/2010 6/1/2010
Period End 12/31/2010 1/31/2011 2/28/2011 3/31/2011 4/30/2011 5/31/2011
# of Days in Period 364 364 364 364 364 364
Days Sales Outstanding (DSO)
# of Days in Period 364.00 364.00 364.00 364.00 364.00 364.00
Receivables Turnover Ratio 9.56 9.49 9.21 9.35 9.49 9.63
Days Sales Outstanding (DSO) 38.09 38.37 39.53 38.94 38.37 37.81
Month July August September October November December
Period Begin 7/1/2010 8/1/2010 9/1/2010 10/1/2010 11/1/2010 12/1/2010
Period End 6/30/2011 7/31/2011 8/31/2011 9/30/2011 10/31/2011 11/30/2011
Average A/R Balance
Period Start A/R Balance $513,056 $498,804 $495,023 $491,972 $498,804 $513,056
Period End A/R Balance $469,958 $456,904 $453,440 $450,645 $456,904 $469,958
Period Average $491,507 $477,854 $474,231 $471,308 $477,854 $491,507
Receivables Turnover Ratio
Period Net Credit Sales** $4,800,000 $4,800,000 $4,800,000 $4,800,000 $4,800,000 $4,800,000
Period Average A/R Balance $491,507 $477,854 $474,231 $471,308 $477,854 $491,507
Ratio 9.77 10.04 10.12 10.18 10.04 9.77
Days In Period
Period Start 7/1/2010 8/1/2010 9/1/2010 10/1/2010 11/1/2010 12/1/2010
Period End 6/30/2011 7/31/2011 8/31/2011 9/30/2011 10/31/2011 11/30/2011
# of Days in Period 364 364 364 364 364 364
Days Sales Outstanding (DSO)
# of Days in Period 364.00 364.00 364.00 364.00 364.00 364.00
Receivables Turnover Ratio 9.77 10.04 10.12 10.18 10.04 9.77
Days Sales Outstanding (DSO) 37.27 36.24 35.96 35.74 36.24 37.27
* Period Year Over

5. 10.30
10.18
10.12
10.10 10.04 10.04
9.90
9.77 9.77
9.70 9.63
9.56
9.49 9.49
9.50
9.35
9.30
9.21
9.10
January March May July September November
40.00
39.5
39.50
38.9
39.00
38.4 38.4
38.50
38.1
38.00
38.00 37.8
37.50 37.3 37.3
37.00
36.50 36.2 36.2
36.0
36.00
36 00 35.7
35.50
35.00
January March May July September November