does forecasting accounts payable not take into account company policy?
Let's say we're using the quick and dirty method of forecasting accounts payable.
We take previous AP / previous Revenue = %
We then use that % going forward and apply it to the next quarters revenue in order to arrive at the new accounts payable. However, this doesn't make that much sense to me.
Past quarter: 100 rev, 10 AP = 10%
This quarter: 0 rev *10% = 0
This implies that this quarter, there would be a balance of 0 for accounts payable. However, what if the company policy was to pay AP every 2 months? This implies the entire balance is paid off.
Am I thinking about this wrong?
Del
doesn't that yield the same results?
Forecasted Accounts Payable = A/P Days × COGS ÷ 365 Days
If revenue in the next quarter is 0, COGS is also 0, and your AP ends up being 0
Formulas wrong
AP days
doesn't that yield the same results?
Forecasted Accounts Payable = A/P Days × COGS ÷ 365 Days
If revenue in the next quarter is 0, COGS is also 0, and your AP ends up being 0
You said yourself that your formula was “quick and dirty”, so it shouldn’t surprise you that it doesn’t work in an edge case like this.
I’m struggling to imagine a company that has zero rev for an entire quarter when it did before. Could you give an example?
I like to use extreme examples to test my understanding. 0 revenue could be maybe covid?
This example is simply so extreme that it throws off the usual rule.
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