Cash Flow Management

Cash Flow Management using Finoko software

Cash flow management is a vital component of financial management that plays a significant role in the success and sustainability of businesses. CF statement is the base report. It involves monitoring, analyzing, and optimizing the flow of cash in and out of a company to ensure that there is enough liquidity to meet financial obligations and support growth initiatives.

One of the key aspects of cash flow management is maintaining a healthy balance between incoming and outgoing transactions. This requires careful planning and forecasting to anticipate fluctuations in CF and make strategic decisions to mitigate any potential risks.

Finoko software provides all necessary features to successfully manage cash flow effectively:

• Automatic creation of CF statement using direct and indirect methods;
• Milti location, multi currency and multi company management and consolidation;
• Payment scheduling and payment approvals;
• Forecasting and gap preventions tools;
• Analysis and meaningful insights (predictive and prescriptive analytic for financial transactions).

Finoko software solutions can be used in clouds or as On-Premise deployments.

There are several strategies that businesses can employ to effectively manage their cash flow. These include:

• Monitoring and tracking cash flow on a regular basis
• Implementing CF projections to anticipate future cash needs
• Setting up a cash reserve to cover unexpected expenses or revenue shortfalls
• Negotiating favorable payment terms with suppliers and customers
• Controlling expenses and optimizing revenue streams

By implementing these strategies, businesses can improve financial health, reduce the risk of insolvency, and position themselves for long-term success.

Actual values

Cash flow statement methods

There are two methods for preparing cash flow statements – the direct method and the indirect method.

Direct Method

The Cash flow using direct method involves listing all cash inflows and outflows in a straightforward manner. This method provides a clear and concise view of the company’s cash movements. Cash inflows typically include cash received from customers, interest income, and dividends. Cash outflows include payments to suppliers, employees, lenders, and other expenses.

Using the direct method can give businesses a more accurate picture of their cash position, making it easier to identify potential financial problems and take corrective action. However, the direct method can be time-consuming and may require detailed record-keeping.

Indirect Method

The Cash flow using indirect method starts with net income and adjusts it for non-cash items and changes in working capital to arrive at the finances from operating activities.

While the indirect method may not provide as detailed a view as the direct method, it can still be a valuable tool for businesses to monitor their CF and make informed decisions. By analyzing the statement prepared using the indirect method, businesses can identify trends, assess liquidity, and plan for future financial needs.

Multi-Location, Multi-Currency and Multi-Company

Currency issues in cash flow management

When dealing with multiple currencies, businesses must be aware of the potential impact of exchange rate fluctuations. Currency fluctuations can affect the value of your assets, liabilities, and cash flows, making it important to closely monitor and manage these risks.

Consolidated cash flow statements

Consolidated cash flow statements are an essential tool for businesses with multiple subsidiaries or international operations. These statements provide a comprehensive view of the reports generated by all entities within the group, allowing for better decision-making and strategic planning.

By consolidating statements, businesses can identify areas of inefficiency, allocate resources more effectively, and improve overall financial management. This can be particularly useful for businesses with diverse operations or complex corporate structures.

Payment Approval Process

The invoice approval process involves several steps that must be followed before a payment can be authorized and processed. It typically begins when an invoice is received from a vendor for goods or services provided to the company. The invoice is then reviewed by the appropriate personnel to verify that the charges are accurate and that the goods or services were indeed received.

Steps in the Approval Process:

1. Submission: The first step in the approval process is the submission of the payment request or invoice. This can be done through an online system, email, or physical form.
2. Review: Once the payment request is submitted, it is reviewed by the relevant department to ensure accuracy and compliance with company policies.
3. Approval: After the review process, the payment request is then sent to the appropriate approver for final approval. This could be a manager, department head, or finance team member.
4. Authorization: Once the payment request is approved, it is then authorized for processing. This step ensures that the payment is legitimate and has been properly reviewed.
5. Processing: Finally, the approved payment request is processed, and the payment is made to the vendor or supplier. This completes the approval process.

Using Finoko you can set up an Invoice Approval Workflow. Approval Workflow is a system that automates the approval process for payments. It allows organizations to set up workflows that define the approval hierarchy, capture necessary approvals, and track the status of invoices in real-time. By implementing an Invoice Approval Workflow, organizations can ensure that invoices are processed efficiently, accurately, and in a timely manner.

Cash flow management: Payment calendar

Payment schedule (payment calendar) is one of the key components of effective cash flow management. It is very important to have a clear and organized payment schedule. A payment calendar helps you keep track of when payments are due, so you can ensure that you have enough funds to cover them.

Benefits of a Payment Schedule:

• Helps you avoid late payments and associated fees
• Allows you to plan ahead and allocate funds accordingly
• Improves your relationship with suppliers and vendors
• Provides visibility into your financial commitments

Cash flow planning & forecasting

Without proper planning and control of cash inflows and outflows, a company may struggle to meet its financial obligations, leading to potential insolvency.

Cash flow forecasting using Finoko models involves predicting how much money will be coming in and going out of your business over a specific period. This allows you to anticipate any potential cash shortages and plan accordingly.

Finoko Cash forecasting software is a tool that can help businesses of all sizes better manage cash flow. Benefits of Finoko Cash Forecasting Software

• Accurate Predictions: Finoko Cash forecasting uses historical data and advanced algorithms to predict future cash flows with a high degree of accuracy. This can help you anticipate potential cash shortages or surpluses and take proactive steps to address them.
• Real-Time Updates: Finoko cash forecasting systems offer real-time updates, allowing you to track your cash position on a daily or even hourly basis. This can help you make more informed decisions about when to make payments or investments.
• Scenario Planning: Finoko Cash forecasting provides features that allow you to create “what-if” scenarios to model different cash flow outcomes. This can help you assess the impact of various decisions on your cash position and choose the best course of action.
• Improved Reporting: Finoko reporting system provides detailed reports and visualizations that make it easy to understand your company’s cash flow trends and make data-driven decisions.

When selecting cash forecasting software for your business, consider factors such as ease of use, integration with other financial systems, scalability, and customer support. 

Cash Flow Budgeting

Cash flow budgeting is the process of forecasting and tracking the inflows and outflows of cash in a business over a specific period of time. By creating a detailed budget that outlines expected revenue and expenses, you can better understand financial position and make informed decisions about how to allocate resources.

There are several benefits to cash flow budgeting, including:

• Identifying potential cash shortages and surpluses
• Helping to prioritize spending and investment decisions
• Improving financial planning and forecasting
• Providing a basis for performance evaluation and goal setting

Planing can be done using different approach. One of the way to plan future financial transactions is to create financial model of the company.

Cash flow gap forecasting and gap management

Cash flow gaps can arise when a company’s expenses exceed its incoming revenues, leading to a shortage of funds to cover its financial obligations. This can be a common problem for small businesses, startups, and seasonal businesses that experience fluctuations in sales.

The first step in dealing with financial gaps is to identify the root cause of the problem. Finoko can help regularly monitor cash flow statements and forecast to pinpoint any potential gaps early on. 

Cash flow analysis 

Cash flow analysis involves examining a company’s cash inflows and outflows to understand how cash is being generated and used within the business. This analysis can help identify areas where the company is either generating excess cash or facing cash shortages. 

Finoko can manage CF analysis techniques that any businesses can use:

1. Cash Flow Statement actual to planned values

The cash flow statement includes three main sections: operating activities, investing activities, and financing activities. By analyzing this statement, you can identify areas where cash is being generated or depleted and take appropriate actions.

2. Cash Flow Forecasting vs actual results

Finoko forecasting involves predicting future cash flows based on historical data and current trends. By creating a CF forecast, you can anticipate potential cash shortages or surpluses and plan accordingly. This can help you avoid financial crises and make strategic decisions.

3. Working Capital Analysis

Working capital is the difference between current assets and current liabilities and represents the funds available for day-to-day operations. By analyzing working capital, you can determine if your business has enough liquidity to meet its short-term obligations. Improving working capital management can help optimize cash flow and enhance financial stability.

4. Receivables and Payables Management

Managing receivables and payables effectively is crucial for maintaining a healthy cash flow. By tracking accounts receivable and accounts payable, you can ensure timely payments from customers and suppliers, which can prevent financial disruptions. Implementing strategies such as offering discounts for early payments or negotiating favorable payment terms can help improve cash flow.

Software and services

At Finoko company, we understand the importance of effective cash flow management for businesses of all sizes. That’s why we offer comprehensive cash flow and budgeting software and support to help you stay on track financially. Our experienced team can assist you with the following components:

• Cash Flow Analysis: We can help set up all integrations and collect data from sources where it is registered to automate the reports process. You will be able to check your statements daily and understanding your cash inflows and outflows, we can help you make informed financial decisions.
• Budget Development: Our team can assist with developing a realistic budget that aligns with your business goals. We can help you prioritize expenses, set financial targets, and monitor your progress over time.
• Expense Tracking: Finoko reporting system can help manage PnL budgets and control costs. We can assist you in setting up systems to monitor and categorize your expenses, allowing you to identify areas where you can cut costs or reallocate funds.
• Cash Flow Projections: By forecasting your cash flow, Finoko can help you anticipate future financial needs and plan accordingly. This can prevent cash shortages and ensure that you have enough liquidity to cover expenses when needed.
• Financial Reporting: Finoko helps keep financial reports updated so you can be informed about your financial status. These reports can help you track performance, identify trends, and make strategic decisions to improve your financial health.