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Poor Cash Flow

Dear Dave
We have lots of billings, but never seem to have enough currency in the bank. We know we need to do a better job of getting paid sooner, but how soon do other firms get paid?

Dear PO
The standard metric used to track and monitor how efficiently you’re collecting is the Average Collection Period. You find this in a two-step process by first dividing annual total revenues by the 365 days in a year. This is your Average Daily Revenue. You then divide average month end accounts receivable outstanding by the Average Daily Revenue number to determine how many days of accounts receivable you have outstanding. Industry surveys consistently show the Average Collection Period to be about 69 days of sales tied up in accounts receivable. How do you compare to the average?

Wahby and Associates