Here's how you can calculate various weightedaverage metrics:
Weighted Average Terms
You can calculates the Weighted Average Termsof the customer, which is the average number of days allowed for acustomer before payment is due. This is weighted according to theitem amount. This calculation is based on your customer's due dateof the installment and the terms offered. You can only include theclosed and fully paid transactions of your customers.
You can impose limits on the number of days allowedto a customer to make the payment with multiple payment terms. Basedon which you can either request for immediate payment or offer termssuch as:
-
NET 30
-
30 / 60 / 90
These terms imply the credit health of your customer.In general, more favorable terms are offered to credit worthy customersand less favorable to customers at risk.
Formula:
Sum (Original Amount Due *Terms) / Sum (OriginalAmount Due).
Weighted Average Days Late
You can calculate the average days late weightedfor a closed invoice amount with at least one late payment. Days lateare the number of days between the due date and the accounting dateof the item activity that closed the item.
For example: The Weighted Average Days Late calculationinforms you that your customer pays on average, 5 days late. However,that number is more meaningful when you know that the customer hadan average of 25 days to make payments.
Formula:
Sum (Amount Due Remaining * Days Late) / Sum (OriginalAmount Due).
Weighted Average Days Paid
Weighted Average Days Paid is the number ofdays a customer takes to make payments. The average is weighted bythe payment amount, on the assumption that a larger payment is moresignificant than a smaller payment.
For example: The weighted average terms are 25, plusthe Weighted Average Days Late is 5. This means that your customerpays an average of 30 days from the invoice date. The 25 days thatwere allowed plus the 5 extra days taken.
Formula:
(Sum (Date Paid - Invoice Date) x Amount Paid) /Total Payments.
The following table provides an example:
| Invoice or Receipt Number | Amount | Due or General Ledger Date | Days Late | Calculation |
|---|---|---|---|---|
| Invoice 1 | 1000 USD | 7/01/2012 | NA | NA |
| Receipt 1 | 1000 USD | 7/25/2012 | 24 | 24 x 1000 = 24,000 weighted |
| Invoice 2 | 20 USD | 8/31/2012 | NA | NA |
| Receipt 2 | 15 USD | 1/01/2011 | 123 | 123 x 15 (partial payment) = 1,845 weighted |
-
24,000 + 1,845 = 25,845 total weighteddays.
-
21,000 + 15 = 1,015 USD total receipts.
-
Weighted Average Days Late: 25,845/ 1,015 = 25.
