Debtors turnover ratio measures the number of times the receivables are rotated in a year in terms of sales.

The debtors turnover ratio indicates the relation between net credit sales and average accounts receivables of the year. This ratio is also known as Debtor's Velocity.

Debtors Turnover Ratio = Net Credit Sales/Average Accounts Receivables

Where Average Accounts Receivables = [Opening Debtors and B/R + Closing Debtors and B/R]

Credit Sales = Total Sales – Cash Sales – Return Inward

This ratio indicates the efficiency of the concern to collect the amount due from debtors. It determines the efficiency with which the trade debtors are managed. The higher the ratio, the better it is as it proves that the debts are being collected very quickly.