How to Calculate Budgeted Cash Collections

Many business owners assume that healthy revenue and adequate profit margins automatically translate into success. Revenue does not always come in when earned, however. Many sales result in accounts receivable, which are not collected until the customers pay. While some customers pay within 30 days, some may take 60, 90 or even longer. Business owners need to consider their company's collections history when managing cash flow. Calculating budgeted cash collections is an important part of managing any business that allows customers to buy now and pay later.

Things You'll Need

• Spreadsheet software
• Accounts receivable records
• Estimated sales figures for the next 12 months

Instructions

1. Before you can calculate budgeted cash collections for a business, you must have a knowledge of collections history for your business. If 100 percent of your customers pay within 30 days, your task will be easy. Chances are good, however, that a percentage of your customers take 60 or 90 days to pay. If you have accounting software, you may be able to obtain the needed information with an accounts receivable aging report. You need to know what percentage of revenue is normally collected in the month of sale and what percentage is collected within the 30 days following the sale. You'll want the same information for 60, 90 or even 180 days after the sale. If your business is a startup, try to obtain collections history benchmarks from within your industry.

2. Set up your spreadsheet, based on the figures you have. Place the names of the months of the year in the first column and the projected sales for each month in the column beside it. In addition, place the months of the year in the top row going across the spreadsheet. Next, calculate the expected collections for the first month of sales, dividing it up by percentages into the months you expect to receive it. For example, if your company collects 30 percent of revenue during the month of sale, 40 percent in the next 30 days, 20 percent more within the next 30 days, and the remaining 10 percent within 90 days, spread the revenue from the first month of sales into the appropriate columns across the spreadsheet to show when the budgeted cash should actually come in.

3. Take a close look at the first month's sales and the way you have it spread out to ensure you've calculated correctly. Then use the same percentages to calculate the monthly receipts from each succeeding month in the same manner, taking care to place the budgeted cash collections in the appropriate columns.

4. Add the monthly receipts you have placed in each column. For example, in the month of September, you might be receiving a percentage of monthly revenue generated from sales that took place in June, July, August and September. By adding each column, you will be able to calculate budgeted cash collections for each month of the year. These figures are more important than revenue generated each month, at least in terms of cash, which is the lifeblood of any business.