What are we spending our cash on?
You are going on a well-earned holiday later this month. However, the board is worried that the company might run out of cash in your absence or fail to pay suppliers. How can you set their minds at ease?
Cash requirements
The board has asked you to spell out exactly what the company is spending its cash on. So before you go on holiday, the directors want you to: (1) prepare a report to present at their next meeting; and (2) reassure them that there will be enough money in the bank to pay key bills on time in your absence. How can you summarise the position in a way they will easily understand?
Key bank movements. In your summary cash requirements report, you need to concentrate on the key bank movements scheduled to occur in your absence. You should divide the report into separate columns for receipts and payments. If you’ve more than one account, then you will need to include receipts and payments columns for them too. On a spreadsheet you can list:
1. Funding transfers required to/from the deposit account(s).
2. Direct debit payments that will hit the account(s).
3. Any BACS transfers that are needed, e.g., total monthly supplier payments.
4. Cheque payments required (larger items only), not forgetting the payment to HMRC for last month’s PAYE and NI.
5. Expected income per week coming into the bank account for both credit card sales and cheques from customers. Of course, it will pay to be conservative in your estimate of these. (See The next step.)
Setting things up in advance
Tip 1. For key suppliers you can set up BACS payments in advance to go through by the due date. This will give the board confidence that key suppliers won’t be chasing them for payment.
Tip 2. If you need to transfer money to or from the company’s deposit account to meet cash requirements, e.g. to fund the company’s quarterly contribution to the pension scheme, you can set these up in advance too.
Tip 3. Just in case someone needs to go back to the documentation, include in your cash report the purchase ledger invoice reference against which the payment is being made. That way all your accounts assistant has to do is dig the paperwork out.
Tip 4. Restrict any discretionary payments (by cheque) the board may feel they need to make to the “Posted but as yet unpaid invoice file”. However, set a monetary cap, e.g. total of £3,000, on these to keep within your cash flow projections.
Other points to consider
Disputed amounts. Do warn the board (in writing) of any suppliers which are due for payment but that you are still in dispute with or just awaiting credit notes from. This will prevent a supplier from “accidentally” being overpaid and hard work for you to get the money back.
Daily bank statements. You should set up someone else with online access to bank statements in your absence to monitor the cash position. One crucial advantage of having daily updates on transactions through the bank is that it allows your credit controller to check that “promised” BACS payments from customers have actually arrived.
For a free sample cash requirements spreadsheet, visit http://financialcontroller.indicator.co.uk(FC 02.09.03).
Create your profile to unlock this advice and many more.