CASH FLOW MANAGEMENT
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CASH FLOW MANAGEMENT
Cash Flow Management for business is the process of monitoring, analysing, and
optimizing the net amount of cash receipts minus the cash expenses. Net cash flow is an
important measure of financial health for any business. It helps the business owner to
analyse optimum cash needs; this can be achieved by estimating the monthly cash needs
and identifying the sources from where these can be met.
Cash flow Management involves:
• Knowing when, where, and how your cash needs will occur
• Knowing the best sources for meeting additional cash needs, and
• Being prepared to meet these needs when they occur, by keeping good relationships
with the debtors and creditors.
Importance of Cash Flow Management
(Some benefits of cash flow management)
1. It helps in avoiding cash shortages, caused by having a gap between cash inflows and
outflows.
2. It helps in budgeting your cash flow and in a way helps to control the business
expenses, setting targets for your sales and sales realisation.
3. Helps with managing limited cash/resources effectively.
4. Facilitates planning for timely debt repayment.
5. With resources available, timely investments can be made.
6. Facilitates easy negotiation of financing terms with lenders.
7. Helps in estimating fluctuations in business.
8. Helps in recognizing current patterns and making predictions.
9. Helps to develop both short-term (weekly, monthly) cash flow projections to help the
business owners to manage daily cash.
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10. Cash flow preparation, availability of adequate funds and its monitoring are some of
the basic needs of any business.
11. One of the important goals of cash management is to reduce or eliminate
uncertainties when meeting cash requirements.
Points to be considered for Cash Flow management:
1. Studying the past trends of cash inflows and outflows is a basis for cash budgeting.
2. Maintaining up-to-date records like sales and purchase register, debtors-creditors
register and cash book are essential for cash flow management.
3. Funds raised for a specific purpose should be utilised for the same purpose.
4. Diversion of funds from the anticipated use to some other use can hamper the
liquidity of funds.
5. Timely recovery of receivables is one of the important aspects of cash flow
management.
6. Timely payment of outstanding dues helps avoid overdue interest liability and
maintains credit worthiness.
7. Surplus cash must not be kept idle but should be invested properly, considering risk
& returns.
8. Any organization requires funds for various purposes such as long-term funds for
acquiring fixed assets and short-term funds for day to day activities of the business.
Funds should be used for the purpose for which they are raised.
9. Increase in profit does not necessarily mean more cash on hand. Profit is the amount
of money the organization earns over a given period of time, while cash is what it has
on hand to keep its business running.
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Documents to be kept ready for analysing Cash Flow Management:
(Which documents should be kept ready for analysing cash flow management)
1. Sales register
2. Cash outflow or expense receipts (Purchases, expenses like electricity, repairs,
transportation, fuel, etc.)
3. Bank account statements (For recording bank transactions)
4. Cashbook (if maintained)
5. Debtors register (if maintained)
6. Creditors register (if maintained)
7. Miscellaneous receipts (if any)
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FAQs
Q: What should be done to manage Cash Flow?
A - Cashflow management consists of monitoring the inflows and outflows of cash. You
need to keep a tab on various sources of cash generation and its appropriate use in
your business.
Q: Is it different from “Funds Flow Management”?
A - Yes. Fund flow statement talks about the financial position of a company in a given
period of time. It talks about sources of funds and application of funds.
Q: Is it applicable to new and existing businesses?
A - Existing businesses are required to monitor actual cash flow as well as plan for future
cash flow. Whereas, till transactions happen, a new business has to prepare
projections of cash flows for the upcoming period.
Q: Is the management of personal Cash Flow similar to Cash Flow management of a
business?
A - Though the principle is same, the scope of personal and business cash flow
management is different. Business cash flow management is more complex, as
businesses have to consider various factors such as sales, recovery from debtors,
capital inflow and outflow, investments, etc.
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Good Luck
For Your Business.
BUSINESS
deAsra Foundation
Address : C/o Persistent Systems Ltd. 402, Bhageerath,
Senapati Bapat Road, Near ICC Tech Park, Pune 411 016
Contact : +91 86699 85599
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