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Hello All, and thanks for any advice you may give.
I am not an accountant so please accept my apologies if what I assume is not correct or I say things that may seem banal to you.
In my company we are looking to improve our receivable collection days and establish some KPIs based on this metrics.
As general knowledge, I know that this is calculated using the debtors numbers as reported on the balance sheet at the end of any given period over the total sales for the year *365.
We monitor our debtors through the daily debtors reports from the Quickbooks so I tried to establish the percentage of debts that we collect within 1-30 days due, 31-60, 61-90, +90.
I then collected all the reports for each financial year since 2015 and for each year I calculated the average debtors collection period. Our financial year goes from 1/08 to 31/07. Please see the example below from which I have taken total debt at the beginning of the period (Aug15), total debt at the end of the period (July 16) and used the formula ((£402717+£395886)/2)/sales. Sales is obtained by adding up all current debts. The result multiplied by 365 is 76.20 days.
I then noticed that by using the average of total outstanding debts and dividing it by the sales I obtain 75.86 days.
Could you please advise whether:
A) any of these methods is correct?
B) if so which one would be the best approach?
C) if my assumptions are wrong why and how to obtain the closest value?
Thanks very much!
I am not an accountant so please accept my apologies if what I assume is not correct or I say things that may seem banal to you.
In my company we are looking to improve our receivable collection days and establish some KPIs based on this metrics.
As general knowledge, I know that this is calculated using the debtors numbers as reported on the balance sheet at the end of any given period over the total sales for the year *365.
We monitor our debtors through the daily debtors reports from the Quickbooks so I tried to establish the percentage of debts that we collect within 1-30 days due, 31-60, 61-90, +90.
I then collected all the reports for each financial year since 2015 and for each year I calculated the average debtors collection period. Our financial year goes from 1/08 to 31/07. Please see the example below from which I have taken total debt at the beginning of the period (Aug15), total debt at the end of the period (July 16) and used the formula ((£402717+£395886)/2)/sales. Sales is obtained by adding up all current debts. The result multiplied by 365 is 76.20 days.
I then noticed that by using the average of total outstanding debts and dividing it by the sales I obtain 75.86 days.
Could you please advise whether:
A) any of these methods is correct?
B) if so which one would be the best approach?
C) if my assumptions are wrong why and how to obtain the closest value?
Thanks very much!
Aug-15 | Sep-15 | Oct-15 | Nov-15 | Dec-15 | Jan-16 | Feb-16 | Mar-16 | Apr-16 | May-16 | Jun-16 | Jul-16 | |
| 90+ | £ 32,576.42 | £ 18,453.02 | £ 33,348.02 | £ 12,948.00 | £ 12,948.00 | £ 53,766.00 | £ 13,326.00 | £ 31,548.00 | £ 26,322.00 | £ 2,970.00 | £ 11,490.00 | £ 31,152.00 |
| 61-90 | £ 81,132.00 | £ 52,080.00 | £ 61,860.00 | £ 81,603.00 | £ 53,703.00 | £ 47,280.00 | £ 22,800.00 | £ 12,774.00 | £ 6,726.00 | £ 50,520.00 | £ 23,310.00 | £ 11,226.00 |
| 31-60 | £110,085.00 | £ 0.00 | £ 81,603.00 | £101,202.00 | £ 94,248.90 | £ 92,113.39 | £ 8,106.00 | £ 73,968.00 | £ 47,310.00 | £ 15,378.00 | £ 42,405.00 | |
| 1-30d | £ 0.00 | £156,723.70 | £ 159,442.21 | £ 156,793.46 | £130,226.08 | £ 100,249.39 | £ 54,911.59 | £ 90,924.61 | £ 121,662.25 | £103,978.38 | £108,418.01 | £ 93,084.85 |
| current | £178,923.70 | £183,368.97 | £ 229,728.22 | £ 154,646.23 | £104,791.39 | £ 108,487.39 | £ 146,844.37 | £148,613.05 | £ 113,625.30 | £136,957.97 | £138,369.85 | £ 182,018.90 |
| Total | £402,717.12 | £410,625.69 | £ 484,378.45 | £ 487,593.69 | £402,870.47 | £ 404,031.68 | £ 329,995.35 | £291,965.66 | £ 342,303.55 | £341,736.35 | £296,965.86 | £ 359,886.75 |