cash flow management - morison menon
Post on 21-Jan-2015
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Cash Flow ManagementPresented by:
Prabhakar Kamath
Partner
Cash Flow Management
• Vital during any cycle - During Boom or
Recession
• Profits vs. Operating Cash flow
• Solvency vs. liquidity
Principles of Cash Management
• An integral part of your business cycle
• Not a passive outcome of your business
• Needs to be tracked, chased and captured
• Needs access to data
Cash Conversion Process
Working capital Cash Coversion
Cycles / period
Expressed in terms
of amount
In terms of days
Inventory + Account
Receivables –
Creditors
Days of Inventory +
Days Sales
Outstanding – Days
Purchases
Outstanding
• Minimize the positive
- maximize the
negative
• Negative Working
Capital or Negative
Cash cycle?
Accelerate the Cash Inflows
• Customer purchase decision / ordering
• Credit decisions
• Shipping
• Timely Invoicing
• Monthly Statement of Account
• Cash discount policies
Accounts Receivable
• Ageing
• DSO vs. Industry DSO
• Ratio of Accounts Receivable to trailing 12
months Sales
• Is it increasing - very important indicator; Is AR
growing faster than sales growth
• Incentivize sales team: ‘not sold till paid for’
• Review the financial standing of existing
customers, especially those increasing their
order size
Inventory
• Set and monitor Inventory Turnover Goals – it
measures how hard your inventory investment
is working (Cost of Goods Sold / Average
Inventory Investment)
• Set reorder levels / reorder quantity policies;
explore JIT concepts
• Verify Inventory periodically
• Keep track of Inventory Aging
• Take timely decisions on likely obsolescence
Accounts Payable
• Ensure supplier payments as per credit
terms; timely payments help get better
pricing & credit terms
• Develop and implement a payment plan
from cash flow forecasts – increases
confidence of suppliers
• Control on accounts payable can be
achieved by managing inventory
Cash flow Forecast
• Long enough to spot potential problems
but short enough to be realistic on sales
and debt collections
• Rolling forecast, re-calculated weekly or
monthly
Advantages of better CF Management
• Spots potential cash flow gaps
• Negotiates new terms with creditors /
bankers
• Reduces dependence on bankers / save
interest
• Provides triggers for investing surplus
Thank You
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