Revenue Outstanding Measured as the Weeks Billing Outstanding

MEASURING nifty REVENUE AS WEEKS BILLING large(p) By SACHIN GHOGLE Introduction Financial prudence concentrees in finding the value in accounts receivable by emphasizing on improving the collections process and so accelerating the hard interchange flow. taxation spectacular is the amount ascribable from the customer as a terminus of an organisations normal stemma operation, that is, it is the amount that has been billed by organisations and is collectable, plainly which has not been collected.The man come onment of Revenue prominent is an important source of exchange and hence an important arguing that the management should pass judgment. The melodic theme of time to recoup the receipts p from each oney is important to determine the profit of every organisation. Most prefer to receive remuneration immediately rather than to wait for it, speci ally beca engross sometimes payment is never make in the latter scenario. there is no one general technique to think the time to recoup the tax tax revenue that lavatory be adopted by all the organisations.It varies from organisation to organisation depending on the temper of bank line and the needs and strategies of the management. Although there is no certainty of receiving payments from all the customers, organisations use assorted modes to calculate the revenue superior or the payment that go out be get later at a some(prenominal) particular point of time. The Weeks commission big(p) (WBO) measure calculates the revenue smashing base on the sum of money list of hebdomads commissions take to recoup contemporary Revenue peachy.The WBO is an important financial parameter, which shows the age in weeks, in an organizations accounts receivable and is delineate in terms of the average time taken to switch over the nifty revenue into capital. The WBO measure helps the management to measure the forte of collection activities and alert the management with caper accounts. If t he WBO is low, then less time is exhausted to collect outstanding revenue. By speedily converting the missions into cash, the organisation passel reinvest this cash and convert it into profits. 1 The WBO Measure A remunerator is responsible to pay for the services used.The quantity outstanding revenue of a remunerator is the sum of invoiced amount minus the cash received against some of the invoices minus the unallocated cash/ payments received as advance or prepayment from the remunerator. Some organisations report the outstanding revenue as being outstanding from the visualize of the invoice as opposed to the due date of the payment. The Weeks rush Outstanding is the centre number of eld accounts corresponding to the payer required to recoup the authentic outstanding revenue for the payer divided by number of old age in a week.WBO = DBO/7 This WBO is figure for an idiosyncratic payer level whereas the management needs the boilersuit WBO for a single art social w hole or a particular stain. There are three methods to calculate the boilers suit WBO for a single short letter unit. The overall WBO ( mode 1) for a single duty unit or a particular territory can then be figure as the average of the WBO for all the payers indoors the corresponding business unit or territory.The overall WBO ( order 2) for a single business unit can be much accurately calculated from the business locating by considering the weighted average of the individual WBO over an important business parameter (for example, the accumulated revenue over the ancient one course). These two methods can type the weak link or the heavy link affecting the outstanding revenue. afterwards identifying the weak link, the management can focus on the weak payers to reduce their outstanding revenue and to improve the overall cash flow in spite of appearance the system.The overall WBO (Method 3) can be calculated as the total number of days billings (cumulative for all the payers at bottom the business unit) required to recoup the current total outstanding revenue for the business unit (cumulative for all the payers). Though this method cannot point the weak link, it is more accurate. 2 How to use WBO Measure Reference involvement 01 March 2008 Listed infra are the aggregate Invoice figures for a payer P1 Invoiced heart and soul $80,000 coin accredited $20,000 move over list $60,000 Unallocated Cash / Payments $15,000 Outstanding Revenue $45,000 Open bill = Invoiced sum total Cash Received Outstanding Revenue = OpenAmount Unallocated Cash / Payments Received US $45000 is the Outstanding Revenue from a Payer P1 Listed below is the complaint Details against Payer P1 care Date 1-Mar-2008 29-Feb-2008 28-Feb-2008 27-Feb-2008 26-Feb-2008 25-Feb-2008 24-Feb-2008 23-Feb-2008 22-Feb-2008 21-Feb-2008 20-Feb-2008 19-Feb-2008 18-Feb-2008 17-Feb-2008 16-Feb-2008 15-Feb-2008 14-Feb-2008 13-Feb-2008 bearing Amount $0 $0 $0 $1,000 $500 $0 $0 $0 $0 $0 $0 $0 $0 $2,000 $0 $0 $0 $2,000 Cumulative armorial bearing Amount $0 $0 $0 $10,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $35,000 $35,000 $35,000 $35,000 $55,000 DAYNUM 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 This chart shows that a mission of amount $55,000 against a Payer P1 which is greater that the outstanding revenue $45,000 from a payer P1is achieved after 18 days of billing counted from March 1, 2008. Thus the days billing outstanding that pass on be required to recoup the outstanding revenue is 18 days. 3 Hence the weeks billing outstanding that will be required to recoup the outstanding revenue will be calculated as follows WBO = DBO / 7 = 18 / 7 = 2. 57 Similarly, the WBO for each payer can be calculated. go through the calculated WBO figures for n Payers to be as follows Payer P1 P2 P3 P4 P5 P6 Pn WBO 4 2 15. 5 1. 5 1 0. 5 And the counseling is interested in the boilers suit WBO measure for a business unit or a territory. Method 1 boilersuit WBO can be calculated as the average of the WBOs of all the payers within the particular Business unit or territory. The overall WBO hence will be ? 1-N WBO N N = Total number of Payers The boilers suit WBO = (4 + 2 + 15. 5 + 1. 5 + 1 + 0. 5)/6 = 4. 09 The Overall WBO is 4. 9 even though the WBO for Payer P3 is 15. 5 4 Method 2 straight off let us consider the following(a) chart. Payer P1 P2 P3 P4 P5 P6 Pn WBO 4. 5 2 15. 5 3. 5 1 0. 5 compile revenue over the past 1 year ( In Millions) 0. 5 1 50 5 2 0. 2 ? 1-n (WBO X Acc. Rev) . 25 2 775 17. 5 2 0. 1 x The considerations of a business parameter, here the Accumulated Revenue over the past one year for each of these payers will alter the deliberate in which the WBO is to be measured from a management perspective. The management weighs payer P3 most 15 times more than payer P5 as the revenue accumulated from payer P3 is approximately 15 times more than that from payer P1. As the WBO for Payer P3 is luxuriously comp ared to the Overall WBO calculated in Method 1, the alternative to improve the calculation is to use a Weighted average of the WBO as opposed to the normal average. As per the impudently formula Overall WBO = ? 1-n (WBO X Acc.Rev) -? 1-n (Acc. Rev) Overall WBO = ( 2. 25 + 2 + 775 + 17. 5 + 2 + 0. 1) -(0. 5 + 1 + 50 + 5 + 5 + 2 + 0. 2 ) = 798. 85 / 58. 7 = 13. 61 The new Overall WBO is now closer to the WBO of the Payer P3 who is a major payer for the organization. 5 Method 3 Listed below are the aggregative Invoice figures for a single business unit Invoiced Amount $1. 50 Cash Received $0. 80 Open Amount $0. 70 Unallocated Cash / Payments $0. 20 Outstanding Revenue $0. 50 $0. 5 jillion is the overall outstanding revenue for the business unit Listed below is the overall Billing Details for the business unit Billing Date -Mar-2008 29-Feb-2008 28-Feb-2008 27-Feb-2008 26-Feb-2008 25-Feb-2008 24-Feb-2008 23-Feb-2008 22-Feb-2008 21-Feb-2008 20-Feb-2008 19-Feb-2008 18-Feb-2008 17-Feb-20 08 16-Feb-2008 15-Feb-2008 14-Feb-2008 13-Feb-2008 12-Feb-2008 11-Feb-2008 Billing Amount $0. 00 $0. 00 $0. 00 $0. 05 $0. 10 $0. 00 $0. 00 $0. 00 $0. 07 $0. 00 $0. 05 $0. 00 $0. 00 $0. 05 $0. 00 $0. 80 $0. 00 $0. 02 $0. 00 $0. 10 Cumulative Billing Amount $0. 00 $0. 00 $0. 00 $0. 05 $0. 15 $0. 15 $0. 15 $0. 15 $0. 22 $0. 22 $0. 27 $0. 27 $0. 27 $0. 32 $0. 32 $0. 40 $0. 40 $0. 42 $0. 42 $0. 52 DAYNUM 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 These charts show that a Billing of amount $0. 2 one million million which is greater that the outstanding revenue $0. 5 million is achieved after 20 days of billing counted from March 1, 2008. Thus the days billing outstanding that will be required to recoup the outstanding revenue is 20 days. Hence the weeks billing outstanding that will be required to recoup the outstanding revenue will be calculated as follows WBO = DBO / 7 = 20 / 7 = 2. 86 6 Based on the pros and cons of the various methods, every organization would study a method to measure its Weeks Billing Outstanding, which will form the baseline for their reporting. wherefore the management has to devise appropriate procedures to insert the required data to implement the selected method. 7