What’s the best way to forecast customer receipts?

The most important number in your business cash flow forecast is likely to be your incoming customer receipts line because of its size and sensitivity. Forecasting these receipts can be a little tricky because of different payment terms and customary behaviours.  

The most common way to forecast debtors receipts is to use the average time it takes customers to pay against each category of sales. This average time taken by customers is called the DSO (days sales outstanding).

Awesome Forecast allows you to enter specific customer payment times (DSO’s) against each of your sales categories and thereby build up an accurate estimation of what you should expect to collect in forthcoming months.

Using the countback method, Awesome Forecast calculate receivable forecasts by applying the DSO days to each line in your sales forecast. So for instance, if you had £100 of sales in June with a DSO averaging 15 days, you would expect to receive the first half of June’s sales in June and the second half of June’s sales in July. This concept would be applied to each month so your total receipts in June would be made up of the first 15 days sales in June plus the last 15 days sales of May.  

Awesome Forecast allows you to enter credit terms up to 365 days or payments on a pro forma or in advance basis.

The resulting trade debtors balances which will make up your trade receivables in your Balance Sheet forecast is shown on a separate page with a transparent breakdown so you can see that the Debtors Carried forward amount is calculated by taking Debtors B/F + Sales less Receipts for each sales line as will as showing your DSO overall.

Similarly, trade payables are calculated using the same method using DPO’s (Days purchases outstanding) giving you an accurate estimate of the amount and timing of supplier payments.

Awesome Forecast is integrated forecasting software that enables you to create an integrated Profit & Loss, Balance Sheet and Cashflow Forecast for your annual budget or longer term forecast up to five years. You can even translate any quarter into a daily 13 week cashflow forecast at a touch of a button for your near term cash needs.

Download a free trial without the need to register at

www.awsomeforecast.co.uk

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