ideas to numbers .. simple financial projections
A business needs to finance its working capital requirements using a combination of short term and long term funding sources. Permanent working capital is best financed with long term funding such a equity or long term loans, whereas temporary seasonal working capital is best funded by short term loans or overdraft facilities.
The fundamentals of a businesses trading activity are that it buys from a supplier, holds inventory, and sells to the customer. The amount of finance a business needs to carry out this day to day trading activity is known as the working capital requirement, and varies from industry to industry depending on the amount of time the business takes to pay suppliers, the amount of inventory held, and the time it takes to collect cash from customers.
Invoice factoring is a process of raising short term funding particularly suited to high growth start up businesses. The method involves the business selling its outstanding customer invoices (accounts receivable) to a factoring company for a cash advance to fund working capital.
The invoice factoring company is responsible for collecting the accounts receivable, and pays the business the remaining balance less any fees due, when the customer has settled the account.
Accounts receivable represent amounts owed to a business for goods sold on account to customers.
Days sales outstanding (dso) is calculated using the days sales outstanding formula and shows the average number of days the customers are taking to pay the business for sales made to them on account.
The Excel days sales outstanding (dso) calculator, available for download below, calculates the days of sales outstanding by entering details of sales, number of days in the accounting period, and the accounts receivables balance.
A business which sells on account to its customers will at any point in time have amounts outstanding from them for unpaid invoices. The amount outstanding is referred to as accounts receivable or sometimes as trade debtors.
If the value of the accounts receivable is divided by the value of the average daily sale, then the resulting figure is the number of days of sales which are outstanding. This number is sometimes referred to as day sales outstanding, accounts receivable days or trade debtor days.
The opening day accounts receivable balance forms part of the opening balance sheet of the business. Accounts receivable are amounts which are owed to you by your customers, they are sometimes referred to as trade debtors.
When you allow your customer credit and invoice them for a product or service and receive payment at a later date 30 days 60 days etc, then while they owe you the money they are classified as an accounts receivable.