How to Forecast Accounts Receivable is essential for maintaining healthy cash flow and ensuring your business runs smoothly. Businesses need reliable, actionable forecasts to plan expenses, investments, and operations. This guide teaches you how to forecast accounts receivable both monthly and quarterly using formulas, real data, and a practical table for clarity.
Understanding How to Forecast Accounts Receivable
How to forecast accounts receivable means predicting the amount of money you expect to collect from customers who purchased on credit during a specific period. A good forecast considers historical collection patterns, current sales, and customer payment behavior.
Key Formula: How to Forecast Accounts Receivable
A basic and widely-used formula is:
Forecasted Accounts Receivable = (Total Credit Sales for Period) × (Average Collection Period in Days) ÷ (Number of Days in Period)
- Total Credit Sales for Period: All sales made on credit, not cash.
- Average Collection Period: Average time (in days) it takes to collect receivables.
- Number of Days in Period: Usually 30 for monthly, 90 for quarterly.
Example:
If you have $90,000 in credit sales per quarter and it takes 30 days on average to collect, your quarterly forecast is:
$90,000 × 30 ÷ 90 = $30,000 outstanding at any time.
Step-by-Step: How to Forecast Accounts Receivable
Step 1: Gather Data
- Collect your credit sales data for the relevant months or quarters.
- Calculate your average collection period using payment history.
2: Apply the Formula
- Use the formula above for monthly or quarterly periods.
3: Adjust for Outliers
- If a client paid unusually late or early, note the anomaly, but don’t let it distort your average.
4: Build Your Table
Below is an example showing both monthly and quarterly forecasts using real numbers.
Sample Forecast Table
| Period | Credit Sales ($) | Avg. Collection Days | Days in Period | Forecasted AR ($) |
| January | 30,000 | 32 | 31 | 30,968 |
| February | 28,000 | 29 | 28 | 29,000 |
| March | 34,000 | 28 | 31 | 30,710 |
| Q1 (Total) | 92,000 | 29.67 (Avg.) | 90 | 30,333 |
How to read this table:
- For each month, multiply Credit Sales by Avg. Collection Days, then divide by Days in Period.
- For quarterly, use total quarterly credit sales, average collection days for the quarter, and 90 as days in period.
Forecasting in Practice: Monthly vs. Quarterly
Monthly Forecasting:
- Use recent monthly sales data and average collection days for that month.
- Ideal for businesses with frequent, smaller transactions (e.g., retail, services).
Quarterly Forecasting:
- Use three months of data and average collection days for the whole quarter.
- Useful for businesses with larger, less frequent invoices (e.g., B2B, manufacturing).
Both methods rely on the same core calculation; the main difference is in the period’s length and data scope.
Using Forecasts for Business Decisions
How to forecast accounts receivable is more than an academic exercise. Use the results to plan your cash needs, schedule vendor payments, and avoid unnecessary borrowing.
For example, if your forecast shows a drop in accounts receivable next month, you may need to speed up collections or delay some expenditures. If your quarterly forecast is higher than normal, it may signal that customers are taking longer to pay, so you might review your credit policy or remind customers proactively.
Practical Tips for Accurate Forecasts
- Review and Update Regularly: Forecasts work best when they’re current.
- Monitor Payment Terms: Offer discounts for early payments if you want to shorten the collection period.
- Segment Customers: If you notice a particular segment pays slower, forecast them separately for better accuracy.
Formula: Retailer Monthly Forecast
A retail company tracks these numbers for April:
- Credit Sales: $50,000
- Average Collection Period: 31 days
- Days in April: 30
Forecasted Accounts Receivable:
$50,000 × 31 ÷ 30 = $51,667
They can expect, on average, $51,667 in outstanding receivables at any time in April.
Small Credit and Automation
Businesses with many micro-transactions or small invoices should track them closely. Sometimes, small credit balances can add up, impacting your overall forecast. Many use automated accounting platforms to flag slow payments and update forecasts in real time.
Integrating Card-Based Sales: Check Card Small Credit Cash
If your business processes a high volume of card-based, check crad small credit cash transactions, include these in your monthly sales data. Although often collected faster than invoiced sales, they affect your overall receivables and should not be overlooked.
Conclusion
How to forecast accounts receivable monthly vs. quarterly boils down to using the right formula, keeping accurate data, and regularly updating your approach. By using a simple formula and an organized table, you can clearly see what you’re likely to collect and when. Adjust your business plans proactively and keep your cash flow healthy.
Remember: Consistency is key. Set a schedule for reviewing and revising your forecast, use technology to automate calculations where possible, and never underestimate the impact of even the smallest receivable on your business success.
