How to Figure Collections of Accounts Receivable
Estimating how much you will receive from your current accounts receivable is essential to business budgeting. While you cannot calculate the exact dollar amount you will receive, you can, by reviewing past collection percentages, garner an approximation of collectible funds. A simple approach to determining the amount of collectible accounts receivable is estimating how much you typically receive. The longer a past due account remains on your books, the lesser the chance that you have of collecting it. Therefore, it is imperative to your business to peruse collections within the first 60 days aggressively.
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Instructions
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Review your accounts to determine your total credit sales for the previous sales quarter. Total the amount of money collected from credit sales for the quarter.
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Divide your collection from the previous sales quarter by your credit sales to determine the collection percentage. For example, within the last quarter you sold $100,000 worth of products on credit. You collected $90,000 on the sales. Your collection percentage is $90,000 divided by $100,000, or 90 percent.
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Multiply your current accounts receivable by your current collections percentage. For example, if you have $60,000 in receivables, multiply $60,000 by 0.90 to determine that you should collect $54,000.
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Tips & Warnings
Calculating your collections percentage quarterly, allows you to recognize and respond to trends in collection activity sooner than if you perform the calculations yearly.
Selling your accounts receivable can provide immediate revenue. However, depending on your collections percentage, you may give up more money selling than waiting to collect.
