Schedule of expected cash collections

The schedule of expected cash collections is a component of the master budget, and states the time buckets within which cash receipts are expected from customers. The information in this schedule is derived from the sales information stated in the sales budget. The resulting information about when cash will be received is then loaded into the cash budget or budgeted statement of cash flows, which is used for finance planning.

The schedule is compiled by calculating the percentage of credit sales that are collected within the month of sales and then within each of the next 30-day time buckets. These percentages are then applied to the calculation of the amount of cash to be received in each budget period.

For example, a business routinely issues most of its invoices at the end of each month on 30-day terms, and has a history of receiving 40% of the related payments in the following month, 50% in the next month, and 10% in the month after that. The company is budgeting billings of $100,000 in January. Using this historical experience, the budget analyst prepares a schedule of expected cash collections that shows $40,000 of receipts in February, $50,000 in March, and $10,000 in April. The same approach is used for the billings for the entire year in order to complete the schedule.

A more detailed approach is to estimate cash receipts for specific customers, if there are cash payment histories that show a clear payment pattern. The cash receipts from all other customers are then calculated using the preceding method. This approach yields a more refined cash collections schedule, but may not be worth the effort unless there is a substantial difference in the timing or amounts of cash receipts.