Cash Flow Forecasting 101
Sales can’t really be counted as cash until the payments are received – so let’s talk about Cash Flow Forecasting.
I recently attended a meeting of the Treasury Management Association of New England (TMANE.org) a professional networking and education forum for treasury professionals. If you’re a small to mid-sized business customer, here is some insight that should help you:
Cash flow forecasting is primarily a communication and information sharing initiative.
Cash flow should be viewed as a tool to calculate the return of net assets, which is the value of incoming receivables and pending payables. Your company’s accounting or finance area department can’t forecast cash in a vacuum, so here are some suggested good practices:
- The accounts payable team needs to communicate to the accounting or treasury function about trade terms and resulting timing of payments.
- The receivables team knows to make sure their terms offered are reasonable, competitive and the full amount due is collectible and when!
- The sales team needs to know any special deals that may impact the companies’ expectation of cash and communicate that back to treasury.
As a business owner or leader, it is in your best interest to ensure that your teams understand how they collectively manage their cash position, through cost management and revenue generation the company needs to grow with.
This is the first of three updates on the cash flow topic.