How You Calculate Weighted Average Metrics

Weighted Average Terms

You can calculates the Weighted Average Terms of the customer, which is the average number of days allowed for a customer before payment is due. This is weighted according to the item amount. This calculation is based on your customer's due date of the installment and the terms offered. You can only include the closed and fully paid transactions of your customers.

You can impose limits on the number of days allowed to a customer to make the payment with multiple payment terms. Based on which you can either request for immediate payment or offer terms such 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 customers and less favorable to customers at risk.

Formula:

Sum (Original Amount Due *Terms) / Sum (Original Amount Due).

Weighted Average Days Late

You can calculate the average days late weighted for a closed invoice amount with at least one late payment. Days late are the number of days between the due date and the accounting date of the item activity that closed the item.

For example: The Weighted Average Days Late calculation informs you that your customer pays on average, 5 days late. However, that number is more meaningful when you know that the customer had an average of 25 days to make payments.

Formula:

Sum (Amount Due Remaining * Days Late) / Sum (Original Amount Due).

Weighted Average Days Paid

Weighted Average Days Paid is the number of days a customer takes to make payments. The average is weighted by the payment amount, on the assumption that a larger payment is more significant than a smaller payment.

For example: The weighted average terms are 25, plus the Weighted Average Days Late is 5. This means that your customer pays an average of 30 days from the invoice date. The 25 days that were 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 weighted days.

21,000 + 15 = 1,015 USD total receipts.

Weighted Average Days Late: 25,845 / 1,015 = 25.