Our receivables revenue calculator helps you determine how efficiently your company is managing its accounts receivable by measuring the net credit sales, accounts opening and accounts closing.
Page written by Ian Hawkins. Last reviewed on July 23, 2024. Next review due January 1, 2025.
This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.
The receivables revenue ratio is a financial metric used to measure how effectively a company manages its accounts receivable. It indicates the number of times a company collects its average accounts receivable balance during a specific period, usually a year.
To calculate the receivables revenue ratio, you need two key pieces of information: net credit sales and average accounts receivable.
1. Net credit sales: This represents the total sales made on credit during a specific period, excluding any cash sales. You can find this information on the company’s income statement.
2. Average accounts receivable: This is the average amount of money owed to the company by its customers during a specific period. To calculate this, add the beginning and ending accounts receivable balances for the period and then divide by 2.
Once you have these figures, you can use the following formula to calculate the receivables revenue ratio:
Receivables revenue ratio = Net credit sales/Average accounts receivable
Simply divide the net credit sales figure by the average accounts receivable figure to obtain the receivables revenue ratio. This ratio indicates how efficiently a company is collecting payments from its customers. A higher ratio typically suggests more effective management of accounts receivable.
The accounts receivable revenue ratio is used by investors, creditors and analysts to assess a company’s liquidity and efficiency in collecting outstanding receivables. It helps evaluate the effectiveness of a company’s credit policies and collection procedures.
For example, if a company has annual credit sales of €500,000 and an average accounts receivable balance of €50,000, its accounts receivable revenue ratio would be 10 (€500,000 / €50,000).
A higher accounts receivable revenue ratio indicates a more efficient collection process and better liquidity, but excessively high ratios may suggest overly restrictive credit policies or aggressive collection tactics. However, the ideal ratio varies by industry and company size. Comparing the ratio to industry benchmarks and historical data can provide valuable insights into a company’s performance.
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