This calculator uses the following equation:
Turnover = Annual Credit Sales / Average Accounts Receivable
Accounts Receivable (AR) is money that a business expects to bring in.
AR Turnover is a ratio of outstanding Account Receivables average duration.
When a company scores a high ratio- it indicates either a company operates on a cash basis, or the collection of Accounts Receivable is efficient.
A low ratio indicates the collection of AR is inefficient. If a company scores a low ratio, they should enforce their credit policies to help collect past due invoices.
High Accounts Receivable Turnover Ratios are an indicator that the business is successful. If the Ratio is extremely high then they may not be accepting sales from potential customers who are at higher risk then current customers. Taking away business from those businesses may limit your marketability and strength. Word of mouth, perhaps the best way for your business to be marketed, can have less of an impact if you limit your business to only customers who you know will pay you.
Word of mouth works in 2 ways, people talk about how good your business is, or how bad it is. Unfortunately, if people receive bad service from a business, they want to tell people about their experience, so that other people are aware of their problem and don't use that business. Whereas if someone gets good service from a business, they might mention it and some people may talk highly about it, but for the most part people don't mention it.
The same could be say about denying sales to businesses who are at risk payers. They won't receive your exceptional service and be more prone to talk good about your company. Instead they will say that you wouldn't do business with them which could hurt your reputation.