As a business owner, you should know that cash flow is the cornerstone for growth in any business. Whether you run a small, medium, or large business, you should be keeping track of your cash flow, which includes accounts receivables. Projecting Accounts Receivable collections is important for meeting requirements and monthly goals.

Being able to identify customers who won’t pay, is important for estimating uncollectible accounts receivable. Your uncollectible accounts receivable (A/R) history and sales staff are good sources. If history shows that 3%-5% of credit sales go bad, for example, estimate 4% of your accounts receivable as uncollectible.

Figuring out when is the next step in accounts receivable collection

Age your A/R: Start listing each customer with the related balance and organize into when you expect to receive payment from them: within 1-30 days, 31-60 days, and later than 60 days.

Organizing your customers according to when they pay

Identify the percentage of customers who pay on time versus late, and how late. Say that 30% of customers typically pay in the month of their purchase, 50% the month after that, and 20% the following month. If you have $100,000 in A/R that is classified as collectible, you can forecast that $30,000 will be obtained this month, $50,000 the following month and $20,000 the month after that.

Adding forecasted cash sales to each section and forecasted collections from other months

Take the beginning accounts receivable for the forecast (this should be the accounts receivable in the opening balance sheet), add forecasted sales less the accounts receivable (as calculated), and your end-of-the-month result is the month’s collections.

Be sure to actively monitor your accounts receivable collections. In doing this, you can immediately recognize and make preparations for when a payment is running late. Follow-ups can help reveal oversights, payments lost in the mail, or other easily corrected issues. This simple practice can be the difference between growth for your company and completer failure. Never take this for granted,