Why Cashflow Management Matters

Careful cashflow management is essential to running your business effectively. Depending on business type and stage of development, cashflow management is key to raising investment and obtaining working capital finance and overdraft facilities. It is also a key for established companies as cashflow problems are often the core reason businesses eventually fail.

Cashflow Forecasting Schedule

The Cashflow Forecast can be run for a specified period, usually the next 1-3 months as this lets you assess possible investments. Weekly forecasts can be made over 2-3 months as most of the transactions that will result in cashflow are already present. Depending on your business needs this could be extended for 12 months or annually for the next 3-5 years. 

How Cashflow Forecasting Works

Cashflow forecasting pulls details that are expected to impact cashflow into a data model. Forecasts are based on existing system transactions, including expected payment or receipt dates for outstanding amounts, and expected cash transactions. In the data model, transactions can be manipulated to accurately forecast the cashflow over that period. 

Key Module Benefits

The Cashflow Management module lets you:

• Identify, predict, and remedy inconsistencies in performance.
• Assess the cash implications of major plans more accurately.
• Know when your business might need additional funding or overdraft facilities more accurately.
• See your business’ current and future cash generation.
• Monitor irregular payers to see if it might be necessary to refuse credit in the future.
• Optimise credit from Suppliers.
• Get invoice discounting credit more easily.

The cashflow forecast can be run for a user-defined period, usually the next 1-3 months. The forecast compiles all the elements you expect to impact cash flow into a model. You can then manipulate these elements to accurately forecast a net balance position for each account for the selected date range. The results appear in a graph.

Transactions included

• Balances in selected bank accounts including credit card accounts: The Cashflow Forecast makes separate projections for each bank account. Ideally, you should reconcile each account using Automated Bank Reconciliation. This way any transactions directly impacting the bank account are accounted for before performing the forecast. 
• All expected and forecasted receipts:
  • From Debtors for outstanding invoices in the system based on average collection days against the specific customer accounts.
  • Sales orders and quotes based on the date the order is due plus the average collection days for the relevant customer.
  • Customer Direct debits and standing orders stored in the journal templates (such as maintenance contract income) based on a recurrence pattern held against the relevant journal templates.
  • Other receipts from General Ledger accounts flagged for inclusion in the cash flow (such as proceeds from the sale of assets of the business or cash sales) based on the budget value for the specified period. 

Transactions Excluded

Expected payments get subtracted:

• Payments to Suppliers for outstanding transactions in the system based on average credit days taken for each supplier.
• Saved Purchase Orders based on the date the order is due plus the average credit days taken for the relevant supplier.
• Purchases, Overheads, and Capital Expenditure held in template journals specifically affecting Bank accounts (such as Wages / Payroll and Salaries journal templates). The forecasted due date is based on a recurrence pattern held against the relevant journal templates.
• Budgeted Purchases, Overheads and Capital expenditure based on the budget values held against any General Ledger accounts flagged for inclusion in cashflow forecasts.

Account type and selection

Balance Sheet Accounts: Balance Sheet Accounts (Assets, and Liabilities and Equity) do not typically have a direct effect on your cashflow position. The Cashflow Forecast does not include journals recorded against these accounts, except to the extent that there is a Bank Account element to any template journals. 

However, some accounts, such as Tax Liability Accounts, can have a future effect on your cash position. In addition, if you are considering liquidating some assets or paying off some loans, you can include these in the forecast to see what the effect would be. 
  
By flagging a Balance Sheet account for inclusion, you are including the balance of that account (to date) in the cashflow forecast. The Cashflow Forecast labels it with the internal reference of 'BAL-' followed by the Account Code. 

Profit & Loss Accounts: Profit & Loss Accounts (Revenues and Expenses) usually have a direct effect on your cashflow position (except for depreciation-type accounts). The Cashflow Forecast automatically includes future-dated journals against a Profit & Loss Account if they fall within the date range.

Profit & Loss accounts have a different effect than Balance Sheet accounts. Instead of the account balance, the Cashflow Forecast includes budgets recorded against the account that fall within the date range as a forecasted transaction in the cashflow. For example, a budget of $4000 in December would appear as a transaction in the forecast that includes 31st December in its projection window. The Cashflow Forecast labels it with the internal reference of 'BUD-' followed by a numerical ID.

1. Go to Bank > Cashflow Forecasting to open the Cashflow Forecasting screen.
2. In the Cashflow Forecasting screen note the following:
   • Forecast Summary: This is based on the date range and bank accounts you selected for inclusion. The values are in base currency.
   • Forecast Chart: This is a line graph illustrating the cash movement for the selected bank account(s) over the projected period. Each Bank Account has a separate line. The chart series scales based on the date range. The chart legend displays the General Ledger code of the selected bank account(s).
   • Bank A/Cs: This lists all bank or credit card accounts set up in the General Ledger. The opening balance for each account (base currency) appears, together with the forecasted movements based on the selected date range. You can select a bank for inclusion in the forecast by ticking Include.
   • Range/Start Date/End Date: You can choose the forecasting period (Weekly, Bi-weekly, Monthly, Bi-monthly, Quarterly, Annually, or Semi-Annually). Choosing a set date range will update the start and end date fields. The forecast must always be for a period starting at greater than or equal to today's date. To ensure you start in the correct position, reconcile your banks before running a forecast. 
   • Generate Cashflow: This creates or updates the Cashflow forecast. Select Preserve Edits to keep any updates you have made to transactions in the cashflow, such as changing the forecasted payment date. Select Reset Edits to re-generate the cashflow from scratch without any of the edits. The system stores data from your previous forecast update. You can choose to re-run the forecast to refresh it at any point.
   • Export: When you have reviewed the transactions for the forecast, you can export the resulting data in Excel or PDF format to allow further analysis or reporting. As the Cashflow Forecast is a dynamic tool you may wish to export at specific times to retain a historical copy of the cashflow forecast over time.
   • GL Setup: This option allows you to select any GL accounts for inclusion in the forecast, allowing you to add cashflow items that do not originate in the Debtors, Creditors, or Sales and Purchase Orders. The Budget (P&L) or Balance (B/S) can be included for any selected GL account (such as payroll, pension, bank charges/interest, or cash sales). Select the Default Bank account you want to forecast them against as these items have an identifiable bank account associated with them. The Cashflow Forecast uses these details each time it runs to extract details from the GL.

When the cashflow forecast runs, the system displays the extracted transaction details in the relevant tabs. 

All Transactions tab

This displays all outstanding transactions and GL elements that can affect your cashflow.  
The cashflow forecast summarises the transactions as follows:

• Sales Ledger: Items appear as reductions in amounts due to specific Debtors.
  • Sales Orders (processed, part, and fully delivered).
  • Unallocated Sales Invoices (processed and posted).
  • Recurring Sales Invoices (forecasted out to the end of the selected date range).
  • Unallocated Sales Receipts. 
• Purchases Ledger: Items appear as reductions in amounts due to specific Creditors.
  • Purchase Orders (Processed, part and fully delivered)
  • Unallocated Purchase Invoices (Processed and posted)
  • Unallocated Purchase Payments shown as a reduction
• Journal Templates: If you set the recurrence field, General or Bank templates contain a line that debits or credits a Bank account.
• General Ledger: If flagged, budgets recorded against P & L GL Accounts and the balance to date of Balance Sheet accounts.

Using the “All Transactions” tab

• Selecting transactions: By default, the system flags each line for inclusion in the forecast, you can choose to include or exclude transactions as you wish by ticking Include. 
  • You can move transactions in and out of the forecast range by editing the date on the associated line. To do this, click Edit and change the Due Date.
  • To find specific transactions you can sort the transactions by column or filter by header column by entering the value you want to filter by under the relevant column heading.
• Sorting transactions: You can choose to group by header column (for example, by account) which gives sub-totals for each group. Click the relevant column heading and drag it to the section above the column heading to sort by that column.
• Viewing Account details: For individual transactions listed, you can drill down to the underlying transaction details and associated account using the hyperlinks under the Account and Int Ref columns. You can maintain Notes once you have linked to the customer/supplier account. 
• Updating the forecast: The chart and summary will automatically update to reflect the new cashflow position after your edits.
• Editing transaction details: It is also possible to edit some details against the transaction within the cashflow. 
  • Click Delete to remove a specific item from the forecast. 
  • Click Edit and this will open the line in edit mode at the bottom of the screen. You can change the value of the forecasted transaction, the bank account associated with it, and the forecasted date. By editing the transaction in this way, you can move it into different periods in the forecast or alter its value (for example, part payment) to see the overall effect on the cashflow. When you finish editing, click Update to save these changes or Cancel to ignore them. 

Expected/Forecasted Payments tab

The Expected/Forecasted Payments tab is like All Transactions but displays only payments forecasted in the date range specified. To amend these payments click Edit. Like All Transactions, you can filter, group, and edit transactions within the grid as you wish. Selecting, deleting, or editing transactions will automatically update the summary forecast and chart tool.

Expected/Forecasted Receipts tab

The Expected/Forecasted Receipts tab displays only receipts forecasted in the date range specified. To amend these receipts click Edit. Like All Transactions, you can filter, group, and edit transactions within the grid as you wish. Selecting, deleting, or editing transactions will automatically update the summary forecast and chart tool.

Source Data for Expected Payments and Receipts

A key element of the Cashflow forecast is the method by which the system calculates the expected receipt date for each outstanding debtor (monies in) or payment date for each outstanding creditor transaction (monies out). The system calculates this based on the average (historical) collection period taken for payment, automatically maintains it for each customer and supplier (vendor) account record and uses it for projections.

The Average Pay Days updates after each payment (supplier payment or customer receipt) and is a Weighted Average value based on the transactions the payment is allocated against. It is calculated as follows:  

• Sum of (Payment Date – Invoice Date) * Amount Allocated for Each Invoice in this Payment / Total Historical Payments over the Last X Months. 

You can maintain X at company level. X represents the time over which the weighted average collection period is calculated.

Making Non-Creditors and Non-Debtors appear in the Forecast

There are several tasks that you should perform so the Cashflow Forecast picks up regular transactions that do not originate in the Debtors/Creditors Ledger:

• Using Budgets: See Managing General Ledger and Analysis Budgets for more details.
  • Create monthly Budgets for Profit and Loss accounts to use in the forecast to cover items such as budgeted overheads and future sales income. 
  • Create Budgets for any Balance Sheet accounts to include future capital expenditure, such as loan repayments so the forecast can include these.
• Flag the GL accounts that you wish to include in the cashflow forecast as described in section 3.