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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?
PO WVA
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?
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