Cash Flow Compared to Revenue
Every top dog needs to know what invoices are being sent and which invoices are getting paid. If your accounting is on a cash basis, your revenue becomes your invoices and your cash flow is your payments. Business owners should run this Cash Flow vs. Revenue report on a monthly basis.
If you’re generating $100,000 worth of invoices, are you getting payments for $100,000 on an average? You should also track these ratios and set up your benchmarks, or acceptable ratios. If the revenue is not coming in, then analyze what’s keeping the cash flow from coming in. Why aren’t your clients paying your invoices? You definitely want to comprehend the answers.
In BillQuick, you can also run the Cash Receipts Journal by Client report monthly to dig deeper. If the money is not coming in and you want to know why your clients are not paying your invoices, look up the information by client. You can also go to the last page and look at your overall income that came in from the invoices sent out.
You want your billing to payment ratio to be between 0 .9 and 1.1. For those of you who are on a cash basis of accounting, think about income as payments and think about revenue as billing. Run it side by side for two years because that’s when the actual analysis comes in and you’ll be able to compare the revenue.
There may be months that show higher payments, for example in March 2013, you may have billed $79,000 but you received payments in the amount of $155,000. On the other hand, in October 2013, you could have billed $116,000 and only received $77,000 cash. Now, of course, the cash typically comes in from the previous month’s billing. However, it’s okay to take that $116,000 and divide it by $77,000 to get your ratios; in this case, the ratio is 1.51.
What most businesses want to be at is plus or minus 10%. So somewhere between 0.9 and 1.1 is acceptable. Of course, anything above 1.1 is great, and anything below 0.9 is unacceptable. What that would mean for your business is that you are generating enough invoices, but for some reason your clients are not paying them. So you need to really look into that and say, “Why is my billing to payment ratio less than 90% on an average in a given year?”
Towards the bottom of the report, your average for the year will be displayed, for example 96% is acceptable. In addition, the average billing per month and the average payment amount for the year will be listed. With this information, you can also analyze if you did a better job in your collections. For instance, if you collected some of the unpaid invoices from the previous year, your averages may look better.