How To Calculate Accounts Receivable Turnover in Xero | Arithmix

Calculating accounts receivable turnover is an important aspect of managing your business's finances. It helps you understand how quickly your customers are paying their bills and how efficiently you are collecting your accounts receivable. In this article, we will discuss what accounts receivable turnover is, when it is valuable to calculate it, and how to calculate it in Xero.

What Is Accounts Receivable Turnover?

Accounts receivable turnover is a financial ratio that measures how many times a company collects its average accounts receivable balance during a specific period, typically a year. It is calculated by dividing the net credit sales by the average accounts receivable balance. The result is a measure of how many times a company collects its accounts receivable balance in a year.

For example, if a company has net credit sales of $1,000,000 and an average accounts receivable balance of $100,000, the accounts receivable turnover ratio would be 10. This means that the company collects its accounts receivable balance 10 times a year.

When Is It Valuable To Calculate Accounts Receivable Turnover?

Calculating accounts receivable turnover is valuable for several reasons. Firstly, it helps you understand how quickly your customers are paying their bills. If your accounts receivable turnover ratio is low, it may indicate that your customers are taking longer to pay their bills, which can impact your cash flow and profitability.

Secondly, it helps you identify any issues with your credit policies or collections process. If your accounts receivable turnover ratio is low, it may indicate that you need to tighten your credit policies or improve your collections process to ensure that you are collecting your accounts receivable in a timely manner.

Finally, it helps you benchmark your performance against industry standards and your competitors. By comparing your accounts receivable turnover ratio to industry averages, you can identify areas where you may need to improve your performance and make adjustments to your business strategy.

How to Calculate Accounts Receivable Turnover in Xero

Xero is a cloud-based accounting software that makes it easy to calculate your accounts receivable turnover ratio. To calculate your accounts receivable turnover ratio in Xero, follow these steps:

1. Log in to your Xero account and go to the "Reports" tab.
2. Select "Profit and Loss" from the list of reports.
3. Select the date range for the report.
4. Click "Update" to generate the report.
5. Scroll down to the "Sales" section of the report and look for the "Net Sales" figure.
6. Divide the "Net Sales" figure by the average accounts receivable balance for the period to calculate your accounts receivable turnover ratio.

By following these simple steps, you can easily calculate your accounts receivable turnover ratio in Xero and gain valuable insights into your business's financial performance.

How Do You Calculate Accounts Receivable Turnover in Xero

Xero itself isn’t naturally geared towards letting you calculate complex metrics like Accounts Receivable Turnover. As an alternative, teams typically use products like Arithmix to import data from Xero and build out dashboards.

What is Arithmix?

Arithmix is the next generation spreadsheet - a collaborative, web-based platform for working with numbers that’s powerful yet easy to use. With Arithmix you can import data from systems like Xero, combine it with data from other systems, and create calculations like Accounts Receivable Turnover.

In Arithmix, data is organized into Tables and referenced by name, not by cell location like a spreadsheet, simplifying calculation creation. Data and calculations can be shared with others and re-used like building blocks, vastly streamlining analysis, model building, and reporting in a highly scalable and easy to maintain platform. Data can be edited, categorized (by dimensions) and freely pivoted. Calculations are automatically copied across a dimension - eliminating copy and paste of formulas.

Arithmix is fully collaborative, giving your entire team access to your numbers and the ability to work together seamlessly.

Calculating Accounts Receivable Turnover in Arithmix

Calculating metrics like Accounts Receivable Turnover is simple in Arithmix. Once you've created your free account, you’ll be able to import your Xero data, and use it to create natural language formulas for metrics like Accounts Receivable Turnover.

Arithmix is designed to give you the power to build any calculations you want on top of your Xero data, while also being easy to use and collaborate on. You can share your dashboards with users inside and outside of your organisation, making it easy to empower your whole team.