Cash Flow Management Tools

Outcome

You have overviews of your company's cash flow. The overview can cover the immediate future or a longer period of time.

Use the overviews to optimize the company's decisions and future actions to ensure the company's solvency.

Refer to the processes listed under See Also.

Before you start

• The financial system must be configured.
• A profit and loss budget must be created in 'Budget. Open' (BUS100)
• An allocation table must be created in 'Allocation Table. Open' (CFS015)
• A cash flow conversion table must be created in 'Conversion Table. Open' (CFS010)
• A cash flow model must be created in 'Cash Flow Model. Open' (CFS020)

Purpose

The primary purpose of cash flow management is to ensure the entity's solvency and flexibility to conquer difficulties and take advantage of possibilities.

An entity with a solid positive net cash flow can not be declared bankrupt. It has a greater chance of staying economically independent of customers, suppliers and credit institutions, and it can also compensate weak operative or financial result for a period of time.

When

There are no general rules as to when or how often you should manage cash flow. Whenever there is a need for a cash flow overview and planning the user can define his/her own cash flow budgets and cash flow plans according to his/her special business requirements.

How

Cash flow management consists of planning future payments and payments received on a short-term as well as long-term basis.

Planning future payments received is more difficult and less reliable then planning future payments. Normally, it is your customers that will contribute most to your future payments received. If a major customer has solvency problems, this can affect your payments received in an unpredicted way.

Planning future payments is more reliable since it concerns your own costs and procurements.

For this purpose, M3 provides two managing tools that outline causes for changes in the future cash balance: Cash flow budgets and cash flow plans.

• Cash Flow Budget

  The cash flow budget retrieves and converts transactions from a profit and loss budget into cash flows. It is used both in long-term and short term-planning purposes, and contains values from different accounts depending on its purpose.

  A cash flow budget for long-term planning is more comprehensive than a cash flow budget for short-term purpose and is used independently. The long-term budget provides you with information which enables you to make long-term decisions. This could be issuing new shares to finance heavy future investments, for example.

• Cash Flow Plan

  The cash flow plan displays the actual cash flows in the nearest future. This is possible since the majority of included transactions are already registered as customer orders, purchase orders, customer invoices, supplier invoices, service agreements, etc.

  The totaled values displayed in the cash flow plan are automatically retrieved from various M3 applications. The sub-ledger values, however, are retrieved directly from a short-term cash flow budget.

  The plan provides you with information so that you can take short-term actions, for example, take a loan to cover temporary deficiency in the cash flow within the nearest future.