Cash collections schedule
Cash collections schedule: the supporting budget schedule that turns budgeted credit sales into the euros of cash expected each month, using collection percentages by month of sale.
See it move
A retailer budgets credit sales of €80,000 in April and €95,000 in May. Customers pay 60% in the month of sale and 40% the month after, so May's cash collections combine 0.60 × €95,000 = €57,000 of May's own sales with 0.40 × €80,000 = €32,000 still trailing in from April, for €89,000 total.
The formula
Variables
- Cash collected in month t (€)
- Collection rate in month of sale (%)
- Credit sales in month t (€)
- Collection rate in the month following sale (%)
- Credit sales in the prior month (€)
Gives the cash expected in a given month from credit sales made that month and the month before; extend with more lagged terms if collections trail beyond one month.
Check yourself
A wholesaler budgets credit sales of €120,000 in June and €150,000 in July. Based on its collection history, customers pay 70% of a month's credit sales in the month of sale and the remaining 30% in the month after. What are the budgeted cash collections for July?