The Receivables Turnover Ratio measures a company’s efficiency in collecting payments from customers. It is calculated by taking the value of a firm’s net credit sales over an accounting period and dividing it by the average accounts receivable during that period. Put plainly, this ratio tells us how many times a company can convert its account receivables into cash during the course of a year. A higher ratio indicates efficient collection of payments which allows a company to maintain healthy levels of cash flow and pay its creditors on time. On the contrary, if the ratio is too low, it suggests the company has difficulty collecting payment from its customers.