What is a temporary cash gap? Cash gap: calculation formula

Any functioning organization has its ownactivity according to certain rules. The work process involves the acquisition of raw materials, energy resources, sales of products, as well as receiving payment from consumers. Ideally, all operations should be made evenly, but in some cases there may be a delay - a cash gap.

More about the situation

Sometimes the operating cycles do not matchfinancial actions when consumers have not yet paid for the purchased goods, but it is already necessary to order raw materials for another lot for the very same money. Such situations are typical for the activities of not only small, but also large organizations.

One should not think that a temporary cash gap- this is the result of incorrect work of managers or accounting errors. Most often, its causes are quite objective. However, managers are obliged to reduce such phenomena to a minimum.

The main causes of

To the occurrence of delays between work processescan lead not only internal, but also external factors. They can equally affect the functioning of the enterprise. However, external circumstances are much more difficult to forecast.

The main reasons for the cash gaps are as follows:

• revocation of license and other force majeure situations that arose in the serviced bank;
• change of the address of the organization, requiring re-registration in various bodies;
• transition to another taxation system that cancels or includes VAT;
• unoptimized methods of doing business;
• hiccups on the part of debtors;
• difficulties with exports as a result of imposing sanctions or other prohibitive measures;
• Complication of the legislation in the country.

It is possible to enumerate many more circumstances that can lead to pauses between current processes. However, in most cases they are due to receivables.

Managing risk of emergence

Managers of enterprises should always reflecton how to avoid cash gaps in the conduct of business. Risk management is based on general principles and includes a competent distribution of sales markets, expanding the range of products, insurance and minimizing the negative consequences. Documents must be compulsorily prepared, which provide an opportunity to attract the necessary funds in the event of delays.

Sometimes organizations release a certain amountsecurities issued in the name of proxies. In some cases, special assignment agreements are concluded, allowing the transfer of rights of claims for certain obligations. Copies of these documents are usually notarized. They can be useful for providing banking institutions for financial monitoring purposes.

To ensure that the cash gap does not occur regularly,should carefully consider the terms of the signed contracts. In them it is desirable to provide for the possibility of prepayment and prescribe the payment deadlines by the end of the previous month. A useful tool can be a bank deposit with the possibility of early disclosure. To diversify the risk it is desirable to establish a settlement account with another bank.

With regular work with balance sheetscounterparties are often identified. A rational solution will be to partially repay them, so that they can be used as an effective tool for delays. They can be used to attract resources as quickly as possible.

Features of detection

Having no idea how to definecash gap, you can not effectively conduct work in the enterprise. To avoid such processes, you need to carefully analyze the cash flows and find vulnerabilities. If at the very beginning of the production cycle there is a negative balance, then we can say that the unpleasant moment has come.

It is also required to study the range of goods inwarehouse. If their share overlaps the subsequent supply, then the situation can not be called critical. However, only for these indicators can not detect a cash gap. The calculation formula exists as follows:

OS + DP-PP = KO.

The table provides a description of the symbols.

Abbreviation	Description
OS	The total amount of financial flows before the commencement of operations
DP	Receivable payments made after a fact
PP	The amount received during the day for the supply of raw materials
KO	The final balance after the completion of all operations

Calculations using this formula must be madeall working days for the timely detection of delays. If the calculation turned out to be a negative number, you should think carefully over the first two points to cover up payments to suppliers.

Common errors on approach

Many financial directors are not making the right decisions.

1. Short-term loans that do not bringtangible results. But they increase the amount of future payments, because they accrue interest. Such a strategy can only succeed if there is a clear plan for the development of the enterprise.
2. When making a prepayment, huge discounts are made, which in some cases do not cover the costs of production.
3. The raw materials necessary for production are paid at the end of the period, because of which the rhythm of the work of the enterprise is disturbed.
4. Sold parts of the existing capital to larger organizations.

Actions during the existence of a cash gap

Although many companies have plenty of reserves,yet it is not always possible to completely protect the company from delays. To panic in such situation it is not necessary. It is necessary to assess the likely consequences for non-payment and to determine the available time reserve for conducting countermeasures.

To prevent a problem situation, the following actions can be taken.

1. Suspension of payment transactions for the supply of goods with the sending of guarantee letters, in which the date of deposit will be indicated.
2. Early disclosure of the deposit in the bank.
3. Involvement of third parties for payment directly on the obligations of the company.
4. Sending written requests to consumers to activate the repayment of debts.
5. Presentation as payment for securities.

After the onset of better times,replenish the internal reserves, from which the funds were taken in a difficult period. It will not be superfluous to note separately the consumers and suppliers who helped the company. Smooth negative aspects will help the positive reputation of the organization, the formation of which needs to work constantly.

What are the management's failures?

In some cases, the cash gap becomescause unbalanced flow of financial flows. Sometimes cash is invested in completely different or related segments of business within a single category of companies, and this has its negative effects. In addition, not always the regular provision of resources is ideal. It largely depends on the coherence of the actions of leaders.

Often money is taken from the turnover forinvesting in a new project that has prospects for quick profits. Miscalculations on the part of management in this situation threaten organizations, whose income is the result of partnership activities, a negative situation in the business environment.

Alternative solutions

There are completely different ways of coveringtime gaps. The first is to provide commodity credit directly to the supplier, and the second - to encourage consumers to early payment of bills issued by the company.

Holding companies can:

• Form a treasury that provides the opportunity to optimize current assets, while reducing the amount of the loan;
• to make centralized purchase of certain categories of goods, saving resources by increasing the volume of supply;
• receive an overdraft to cover the missing cash.

Final part

As a guide for beginners can takemethod of planning temporary cash disruptions of the city budget. It is created in full compliance with Russian law to determine the amount of debt that has arisen at certain intervals.