Accounts Receivable to Sales Ratio: Formula and Example

Managing your company's cash flow is essential for long-term stability. One powerful tool in this process is the sales receivables ratio, which shows the percentage of your sales made on credit. 

A 2025 PYMNTS analysis found that 22% of small business owners in the United States struggle to pay their basic expenses, and 45% of them miss their paychecks because of cash flow issues, placing nearly one in five at risk of closing.

A high ratio of accounts receivable to sales indicates that you are relying more on credit sales. Offering credit increases sales, but late payments may strain cash flow. Maintaining a healthy cash flow and making sure that business operations run smoothly depend on knowing and controlling your sales receivables ratio. 

In this article, we will explore how to calculate and optimize these ratios to improve financial health.

What is the Accounts Receivable to Sales Ratio?

The accounts receivable to sales ratio is a financial metric that compares the amount of outstanding payments (accounts receivable) to total sales made by the business. Businesses can use this ratio to determine the proportion of their sales that are made using credit rather than cash.

It is essential to understand this ratio since it shows how much money the company may be holding onto in order to keep running efficiently. A high ratio could mean that a sizable amount of sales are unpaid, which could cause problems with cash flow.

This ratio is a key indicator of a business's liquidity, allowing you to understand how efficiently credit is being managed. Now, let's explore the most important sales receivables ratios that can be used to assess the financial health of your company. 

Key Sales Receivables Ratios You Need to Know

To effectively manage your sales receivables, it's important to understand two key ratios: the accounts receivable to sales ratio and the Days Sales Outstanding (DSO).

1. Accounts Receivable to Sales Ratio

This ratio tells you what percentage of your sales are on credit. It is calculated by dividing your total sales by your accounts receivable. Slower cash inflows may result from a greater ratio, which may indicate that your company depends on credit sales.

2. Days Sales Outstanding (DSO)

DSO calculates how long it typically takes to get paid following a sale. A lower DSO shows that your company is collecting payments faster, which improves cash flow.

Formula: 

(Accounts Receivable ÷ Total Credit Sales) × Number of Days.

By monitoring these ratios, you can identify potential issues early and improve your credit management processes.

After discussing these key ratios, let's move on to how to calculate and evaluate the accounts receivable to sales ratio. 

How Can We Calculate the Accounts Receivable to Sales Ratio?

The accounts receivable to sales ratio is easy to calculate, but how you interpret it can reveal important information about the financial health of your company. This ratio shows how well your company is turning credit sales into cash by calculating the percentage of sales that were made on credit. 

Formula:

Accounts Receivable ÷ Sales Revenue

For example, suppose your business has $100,000 in accounts receivable and $500,000 in total sales revenue for the period. To calculate the accounts receivable to sales ratio, you would divide the two values:

$100,000 ÷ $500,000 = 0.2 or 20%

This means that 20% of your sales are still unpaid. A high ratio indicates that a significant portion of your sales is tied up in credit, potentially delaying cash flow. Here's what this could mean:

• A higher ratio can indicate inefficiencies in the collections process, which could lead to liquidity issues.
• A lower ratio indicates that your business is collecting payments more quickly, positively impacting cash flow and operational efficiency. However,  finding the ideal balance is essential, as a percentage that is too low could indicate overly strict credit guidelines, which could reduce your sales prospects.

Since it provides a clear image of how quickly you can convert credit sales into cash, it is crucial to understand and keep an eye on this ratio. When your ratio has been determined, it's time to act. 

Also read: Understanding How Accounts Receivable Appears on Financial Statements

Now, let's look at some strategies you can use to raise your cash flow and sales receivables ratio.

Strategies to Improve Sales and Receivable Ratios

A proactive approach is necessary to improve your cash flow and sales receivables ratio. You can improve financial stability, decrease payment delays, and streamline collections by implementing important measures into practice. 

• Streamline Your Invoicing and Payment Process: Ensure invoices are sent promptly and include clear payment terms. This reduces confusion and payment delays. Automating the process with digital invoicing platforms like FreshBooks or QuickBooks helps ensure accuracy and faster delivery.
• Offer Incentives for Early Payments: Offer discounts or incentives to customers who make early payments. For example, offering a 2% discount for payments received within ten days can encourage customers to pay their bills on time and increase your sales receivables ratio.
• Automate Accounts Receivable: Automating the accounts receivable process streamlines collections and minimizes human error. Tools like Xero send automated reminders and payment requests, making it easier for customers to pay on time and improving your cash flow.
• Revise Credit Policies: Tighten your credit policies to ensure that credit is only extended to reliable customers. Utilize services such as Dun & Bradstreet to regularly assess your customers' creditworthiness in order to prevent large amounts of accounts receivable and lower the possibility of late payments.

You can improve your cash flow management by lowering the time it takes to collect payments and increasing your sales receivables ratio. Now, let's look at the common errors that companies make when managing their sales receivables.

Common Mistakes to Avoid in Sales Receivables Management

Maintaining a healthy cash flow requires efficient sales receivables management, but there are a few common mistakes that companies should avoid. These mistakes might affect cash flow, cause unnecessary inefficiencies, and delay collections. 

This pie chart shows the common mistakes in sales receivables management based on 2025 industry surveys, highlighting issues like AR aging and manual processes.

• Ignoring AR Aging: Missed collection opportunities may result from a failure to routinely monitor your accounts receivable aging report. Overdue accounts should be prioritized, and follow-ups should be done promptly.
• Ignoring Industry standards: You risk missing indications of inefficiency if you don't check your receivables ratios with industry standards. Knowing how your company stacks up against rivals might help you pinpoint areas that need work.
• Relying on Manual Processes: Managing accounts receivable manually can lead to errors and delays. By automating the process, cash flow issues are less likely to occur and faster, more effective collections are ensured.

Are you finding it difficult to manage your receivables effectively? At South East Client Services (SECS), we provide expert solutions to streamline your accounts receivable management. Our services include:

• Outsourced Debt Collection
• Flexible Payment Terms
• Compliance and Legal Collections
• Customized Accounts Receivable Management

By collaborating with SECS, you can avoid these common mistakes and improve the management of your sales receivables, ensuring more efficient operations and improved financial stability. After discussing common errors, let's summarize the key takeaways in the conclusion.

Conclusion

Maintaining a healthy cash flow and making sure your company can pay its debts depend on knowing and controlling your sales receivables ratio. Businesses can decrease liquidity problems and increase cash flow efficiency by computing and adjusting this ratio. 

Techniques including automating the process, providing incentives for early payments, and simplifying the invoicing process can have a significant impact.

South East Client Services (SECS) helps businesses improve their receivables management through flexible solutions tailored to your needs. SECS ensures that you maintain control over your financial operations by providing professional assistance in debt collection, compliance, and account management.

Are you ready to manage your cash flow? Get in touch with SECS right now, and we'll assist you in optimizing your receivables for more efficient business operations. 

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