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