What is Cash Collection ?

Definition

The combination of the current month's cash sales and the credit sales of the previous month, used to calculate the total amount of cash received during the month. Credits from the previous month are used because that cash may or may not be received during the same month that the credit was issued.

What is the cash collection cycle?

The cash collection cycle is the number of days it takes to collect accounts receivable. The measure is important for tracking the ability of a business to grant a reasonable amount of credit to worthy customers, as well as to collect receivables in a timely manner. The concept is not the same as the cash conversion cycle, which is a longer period beginning with the outflow of cash to pay for goods and ending with the subsequent receipt of cash from the sale of those good

Cash collection is a function of Accounts receivable. It is the recovery of cash from a business or individual with which you have issued an Invoice.

Unpaid invoices are considered outstanding.

Invoices are always issued with terms of payment. These terms vary widely from 'Cash terms', meaning that the invoice is due immediately, to many forms of 'Credit terms' (for example 30 days from date of invoice).

Invoices which remain unpaid for periods longer than their 'terms' indicate are considered overdue.

It is the aim of the Cash collection function of a business to collect Monies for all outstanding invoices before they become overdue and to mediate payment arrangements to ensure that invoiced debts do not become doubtful or bad.