## Sales Budget - Part 5

Part 5   -  Determine When Customers Will Pay You

Part 5 of the Sales Budget predicts when customers will pay for the goods and services they buy. This calculation depends solely on your company's credit granting policy. Moreover, if your credit granting policy states that consumers have 30 days to pay for products they buy, then cash from sales made, in any given month, will not be collected until the following month (IE 30 days). For instance, lets assume your forecasted dollar sales for January is \$20,000. Also assume, your credit granting policy allows customers to pay in 30 days from the date of purchase . As a result, customers who purchase in January, in most cases, will wait until February before paying you. Therefore, your business will not collect the cash (\$20,000) from January's sales until February.

Some companies, such as MacDonald, do not provide credit terms to its customers. Moreover, customers pay cash (check, debit card, money order, credit card) when purchasing goods or services from such organizations. As a result, these companies do not experience a "lag" in collecting cash from customers. In our example, Murray does not provide credit terms to his customers. Therefore, when Murray receives cash from each customer (check, money order, credit card), he will then process their order by mailing out the information on diskette. Below illustrates Murray's Forecasted Cash Collections from Customer for 200X.

 FORECASTED CASH COLLECTIONS FROM CUSTOMERSFOR 200X Forecasted Sales each Month Forecasted Cash Collections from Customers each Month MONTH July \$18,720 \$18,720 August \$23,920 \$23,920 September \$24,960 \$24,960 October \$13,520 \$13,520 November \$10,400 \$10,400 December \$12,480 \$12,480 TOTALS \$104,000 \$104, 000

As you can see, Murray's Forecasted Sales each month will be collected in the month the sale is made. If Murray's credit granting policy, however, allowed customers 30 days, then cash from July's forecasted sales of \$18,720 would not be collected until August. And cash from August's forecasted sales would not be collected until September, and so on... Below illustrates Murray's Forecasted Cash Collections from Customer for 200Y.

 FORECASTED CASH COLLECTIONS FROM CUSTOMERS FOR 200Y Dollar Sales Forecasted Cash Collections MONTH each Month from Customers each Month January \$23,040 \$23,040 February \$21,120 \$21,120 March \$17,280 \$17,280 April \$17,280 \$17,280 May \$13,440 \$13,440 June \$9,600 \$9,600 July \$7,680 \$7,680 August \$17,280 \$17,280 September \$15,360 \$15,360 October \$9,600 \$9,600 November \$21,120 \$21,120 December \$19,200 \$19,200 TOTALS \$192,000 \$192,000

Once again, Murray's Forecasted Sales each month in 200Y will be collected in the month the sale is made. Murray's anticipated cash collections, appearing in the last column, are extremely important, since they will later become part of his 200X and 200Y Forecasted Cash Flow Statements (IE Cash Outflows).

Categories: Forecasting