Accounts receivable the numbers behind the numbers april2015

Accounts Receivable

Risk Analysisfor

Jan 2015

Copyright 2015 Mantramax Pty Ltd -

All rights reserved1

for

Acquisitions

Due Diligence

Business Rescue

Contents

1. Introduction

2. Sample Historical Data – Target Company

3. Traditional Analysis

4. DSOB Risk Analysis

5. Comparison of Methods5. Comparison of Methods

6. Forecasting Analysis

7. Summary of results

8. Contacts



All benchmarks in this case study use the Mantramax methodology

benchmarking Accounts Receivable against Internal Credit Terms

1. Introduction

This case study show the difference in performance/risk of Accounts Receivables in

Company X and Y with equal dataset totals.

The Age Analysis balances for each Company’s Debtors Book were calculated in a uniform manner

for consistency.

Company X & Y - Dataset Totals Feb 2014 Mar 2014 Apr 2014 May 2014 Jun 2014 Jul 2014

Total Credit Turnover incl VAT/Sales Tax R 500 000 R 500 000 R 500 000 R 500 000 R 500 000 R 500 000

Total Debtors Age Analysis R 500 000 R 750 000 R 875 000 R 875 000 R 875 000 R 875 000



The Age Analysis balances for each Company’s Debtors Book were calculated in a uniform manner

for consistency.

Days Sales Outstanding Equal

Same AR Performance/Risk ??????

The effect of an upward or downward revenue trend in different Payment Credit Terms

on the monthly performance of Accounts Receivable is highlighted in the result

comparison. The long term effect of these trends will have a significant impact on

forecasted/budget Account Receivable balances.

2. System Data – Company X and Y

Company XTurnover incl VAT/Sales Tax Feb 2014 Mar 2014 Apr 2014 May 2014 Jun 2014 Jul 2014

15 days Invoice R 500 000 R 400 000 R 300 000 R 200 000 R 100 000 R 0

30 days Statement R 0 R 100 000 R 200 000 R 300 000 R 400 000 R 500 000


Debtors Age Analysis as at

Month end

Feb 2014

Month end

Mar 2014

Month end

Apr 2014

Month end

May 2014

Month end

Jun 2014

Month end

Jul 2014

1 to 30 days (Current) R 500 000 R 500 000 R 500 000 R 500 000 R 500 000 R 500 000

31 to 60 days R 0 R 250 000 R 250 000 R 250 000 R 250 000 R 250 000

61 to 90 days R 0 R 0 R 125 000 R 125 000 R 125 000 R 125 000





Company YTurnover incl VAT/Sales Tax Feb 2014 Mar 2014 Apr 2014 May 2014 Jun 2014 Jul 2014

15 days Invoice R 0 R 100 000 R 200 000 R 300 000 R 400 000 R 500 000

30 days Statement R 500 000 R 400 000 R 300 000 R 200 000 R 100 000 R 0


Debtors Age Analysis as at

Month end

Feb 2014

Month end

Mar 2014

Month end

Apr 2014

Month end

May 2014

Month end

Jun 2014

Month end

Jul 2014

1 to 30 days (Current) R 500 000 R 500 000 R 500 000 R 500 000 R 500 000 R 500 000

31 to 60 days R 0 R 250 000 R 250 000 R 250 000 R 250 000 R 250 000

61 to 90 days R 0 R 0 R 125 000 R 125 000 R 125 000 R 125 000


3. Performance Review Company X

A/R Performance Measurement Feb 2014 Mar 2014 Apr 2014 May 2014 Jun 2014 Jul 2014

Debtors Days - Average Sales Method (3 months) 30.00 45.00 52.50 52.50 52.50 52.50

Days Sales Outstanding (DSO) 28.00 45.00 53.25 53.50 53.25 53.50

Best Possible Days Sales Outstanding (BPDSO) 28.00 31.00 30.00 31.00 30.00 31.00

Delinquent Days Sales Outstanding (DSSO) 0.00 14.00 23.25 22.50 23.25 22.50




Days Sales Outstanding Benchmark (DSOB) 28.00 31.00 36.89 41.05 42.40 44.33

Delinquency Index (DSO/DSOB) 100.00% 145.16% 144.35% 130.32% 125.59% 120.68%

Delinquency Improvement Target (DSO to DSOB) 0.00% 31.11% 30.73% 23.26% 20.38% 17.13%

Accounts Receivable Performance Values

Total Debtors Book Value R 500 000 R 750 000 R 875 000 R 875 000 R 875 000 R 875 000

Debtors Delinquency Index Target Value R 0 R 233 333 R 268 845 R 203 555 R 178 286 R 149 922

DSOB Value R 500 000 R 516 667 R 606 155 R 671 445 R 696 714 R 725 078

4. Performance Review Company Y

A/R Performance Measurement Feb 2014 Mar 2014 Apr 2014 May 2014 Jun 2014 Jul 2014

Debtors Days - Average Sales Method (3 months) 30.00 45.00 52.50 52.50 52.50 52.50

Days Sales Outstanding (DSO) 28.00 45.00 53.25 53.50 53.25 53.50

Best Possible Days Sales Outstanding (BPDSO) 28.00 31.00 30.00 31.00 30.00 31.00





Days Sales Outstanding Benchmark (DSOB) 28.00 45.76 45.50 44.95 42.40 39.77

Delinquency Index (DSO/DSOB) 100.00% 98.34% 117.03% 119.02% 125.59% 134.51%

Delinquency Improvement Target (DSO to DSOB) 0.00% -1.69% 14.55% 15.98% 20.38% 25.66%

Accounts Receivable Performance Values

Total Debtors Book Value R 500 000 R 750 000 R 875 000 R 875 000 R 875 000 R 875 000

Debtors Delinquency Index Target Value R 0 R -12 698 R 127 347 R 139 836 R 178 286 R 224 497

DSOB Value R 500 000 R 762 698 R 747 653 R 735 164 R 696 714 R 650 503

5. Comparison of Results Company X vs Y

Days Sales Outstanding (DSO) Feb 2014 Mar 2014 Apr 2014 May 2014 Jun 2014 Jul 2014

Company X 28.00 45.00 53.25 53.50 53.25 53.50

Company Y 28.00 45.00 53.25 53.50 53.25 53.50

Industry Standard 60.00 60.00 60.00 60.00 60.00 60.00

Days Sales Outstanding

Benchmark (DSOB) Feb 2014 Mar 2014 Apr 2014 May 2014 Jun 2014 Jul 2014

Company X 28.00 31.00 36.89 41.05 42.40 44.33

Company Y 28.00 45.76 45.50 44.95 42.40 39.77



Company Y 28.00 45.76 45.50 44.95 42.40 39.77

Delinquency Index (DSO/DSOB) Feb 2014 Mar 2014 Apr 2014 May 2014 Jun 2014 Jul 2014

Company X 100.00% 145.16% 144.35% 130.32% 125.59% 120.68%

Company Y 100.00% 98.34% 117.03% 119.02% 125.59% 134.51%

Index base 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

As can be seen above, the DSO for both companies are the same. The DSOB trend for

Company X is upward and the reverse for Company Y. If the monthly revenue fluctuate

then these trends will be directly affected.

For comparison purposes only the DSO, DSOB and Delinquency Index trends are shown.

6. Comparison Graphs Company X vs Y

0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00

Feb 2014 Mar

2014

Apr 2014 May

2014

Jun 2014 Jul 2014

Company X Company Y Industry Standard

Days Sales Outstanding (DSO) D

eb

tors

28.00

33.00

38.00

43.00

48.00

Feb 2014 Mar 2014 Apr 2014 May

2014

Jun 2014 Jul 2014

Company X Company Y

Days Sales Outstanding Benchmark (DSOB)

De

bto

rs



90.00%

100.00%

110.00%

120.00%

130.00%

140.00%

150.00%

Feb

2014

Mar

2014

Apr

2014

May

2014

Jun 2014 Jul 2014

Company X Company Y

Delinquency Index (DSO/DSOB)

Be

nch

ma

rk

The DSO graph show that based on Total

Turnover and Debtors Book value,

Company X and Y is the same.

The DSOB show the reversal of trends

between the two companies with the

Delinquency Index indicating the change in

risk profiles of the two companies.

7. Contacts

Contact me for Initial Reviews and Monthly

Reports for your company or clients:

Wessel Roux


All rights reserved

Wessel Roux

Cape Town, South Africa

Cell +27 (0) 82 852 9924

Fax +27 (0) 86 689 1093

Email [email protected]

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