Predicting when the cash comes in from your sales

August 9, 2012

Predicting the sales in your business is one thing, predicting the cash receipts is something else entirely.

Here are some tips on how to predict the cash:

1. Remember that the cash you receive is gross of VAT.  This is going to look good for your cash flow but you’ll be hit with bigger VAT payments if you get more cash in.

2. Get an average of how long it takes your customers to pay you.  A simple method is using the debtor days calculation which is simply your debtors divided by your gross sales multiplied by 365.  Its a crude average but it will give you an idea of how quickly people are paying you.

3. Whatever you do, be prudent when predicting the cash.  You don’t want to budget in lots of expenditure based on cash coming in if you haven’t allowed for any sort of slow down in customers paying.

So in conclusion, getting to the bank balance you want will be maximising your sales, limiting your expenses and getting your customers to pay you quicker.

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