Definition
A cash collection forecast estimates when receivables will turn into cash based on aging and payment terms.
Formula
Collections = AR aging buckets * expected collection rates
Example
If $500k AR is 0-30 days at 90% expected collection, forecast $450k.
How to use it
- Base rates on historical collections by segment.
- Update forecasts after major pricing or contract term changes.
Common mistakes
- Assuming 100% collection on aged receivables.
- Using invoice dates without considering dispute delays.
Measured as
Collections = AR aging buckets * expected collection rates
Misused when
- Assuming 100% collection on aged receivables.
- Using invoice dates without considering dispute delays.
Operator takeaway
- Base rates on historical collections by segment.
- Update forecasts after major pricing or contract term changes.
- Tie Cash Collection Forecast to the same balance-sheet date, scenario, and decision memo you are using elsewhere in the model.
- Document which claims, costs, or adjustments your team includes before comparing numbers across forecasts, covenants, or valuation work.
Next decision
- Read Cash conversion cycle: turn working capital into runway if the decision depends on interpretation, policy, or trade-offs beyond the raw formula.
- Decide whether Cash Collection Forecast belongs in cash planning, valuation, or debt monitoring so the number is used in the right model.
Where to use this on MetricKit
Guides
- Cash conversion cycle: turn working capital into runway: A practical guide to the cash conversion cycle (CCC): how AR/AP timing changes cash, how to reduce days outstanding, and why runway depends on working capital.