The cash gap is.. Covering the cash gap

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

The most common problem many businesses face is this. The company works in its usual mode, delivers orders, incurs any costs. The end of the month is coming, you need to pay monthly types of expenses (rent, salary), but there is not enough money. This situation is called a cash gap.

The main problem of enterprises

Cash gap is an intermediate shortage of funds. When the time comes to spend the money, but there are no receipts that were planned, there is a cash gap. This problem can appear in all enterprises of any form of ownership. Its occurrence does not always indicate the illiterate policy of the enterprise.

Reasons for lack of funds

The lack of necessary funds in the accounts can be formed for various reasons. For example:

• illiterate organization of enterprise finances;
• payment delays;
• unstable market situation;
• export factors.

When a company plans cash receipts, the timing of these receipts from buyers and the timing of their transfers to suppliers should be taken into account. Very often this is a problem. Therefore, such an organization of the enterprise's finances is one of the reasons for the lack of funds in the account.

Also the reason for the shortage are unscrupulous buyers who delay payments. The so-called financial hole will manifest itself very strongly if the buyer asks for a deferred payment. The consequences of such a situation could negatively affect the stability of the company.

There is a so-called temporary cash gap. It can be predicted, unlike a permanent gap. To minimize the consequences of such a situation, a specific plan of measures should be developed.

Example of cash gap

In the example, the cash gap looks like this. There is a company that manufactures bakery products. Once a week, she buys raw materials from suppliers and pays for them on the day of delivery, that is, after the fact. The sale of finished products is made with a deferred payment for 5 working days. Suppose, on Monday, goods were delivered in the amount of 1.5 million rubles and on the same day the supply of raw materials in the amount of 1.0 million rubles. According to the terms of the contract, the company must pay upon the delivery of raw materials, which means that it immediately pays for the order in full. Remains on the account of the company 500 thousand rubles. On the last day of payment on Friday, the customer receives money in the amount of 400 thousand rubles.rubles. The following Monday, raw materials are again purchased for the same amount (1.0 million rubles). But 900 thousand rubles remain on the company's account. Thus, there was a cash gap in the budget in the amount of 100 thousand rubles.

For the company, this threatens with the following consequences:

• pen alties for late payment;
• shortage of raw materials, which is fraught with a violation of production technology;
• company's reputation will be at risk.

Forecast for the future

How to calculate the cash gap? Let's figure it out now.

The cash gap is a problem that can and should be predicted and calculated. To do this, you should draw up a financial statement of cash flows and identify the types of expenses. If at the beginning of a new operating period a negative value has formed in production, then a cash gap has arisen. You should also analyze the remaining raw materials. If their quantity is enough until the next purchase, then the situation at the enterprise is quite stable.

There is a formula by which you can calculate such a problem as a cash gap.

Formula

DS+PD-PP=ODS, where:

DS - cash at the beginning of the day;

PD - received payments;

PP - payments to suppliers;

ODS - cash at the end of the day.

If the ODS value is negative, it is recommended to work with debtors so that their debt can cover the negative value.

Experts recommend doing thiscalculation every day

Correct mistakes

In order to cover the cash gap, it is necessary to draw up a daily detailed report according to the above formula. It is necessary to find out what factor is the cause of its occurrence. After that, further decisions can be made. Below are possible ways to fight.

Daily work with receivables. You should contact customers every day, communicate, find out the reason for the delay in payment, and find common solutions. If it is possible to provide a commodity loan, then several factors should be remembered: you need to set adequate loan limits, sort debts, and reconcile with debtors.

You should try to use loans as little as possible.

Competent preparation of financial statements, correct calculation of cash flows are important.

How to deal with the consequences

A cash gap is a situation that harms an enterprise. It is worth thinking about mitigating the consequences for the company. This can be done in the following ways:

• suspend mandatory payments to the organization - it is better to pay taxes a month later, as the pen alty will be much lower than the overpayment in the form of interest on a bank loan;
• invest funds from owners;
• use factoring schemes - banks can redeem accounts receivable only from verified counterparties at a big discount (this methodmore suitable for large organizations);
• work with counterparties, perhaps suppliers will be able to defer payment, because they are also interested in this (if the company constantly uses the services of the same organization for a long time, the supplier will meet halfway);
• get a loan from the bank.

Credit as a way to get rid of the cash gap

One way to mitigate the effects of a cash gap is to get a loan from a bank. Without guarantors, the loan amount may not be sufficient to cover the gap. To get a loan in a large amount, you should follow a few rules:

• Apply to several banks at once. This will allow you to get a positive credit history in most financial institutions and distribute the overall need for cash. New customers will have to wait a bit, but if you reapply, the terms of the loan may be revised in favor of the organization.
• When applying to the bank, it is better to apply for an amount greater than the cash gap. In this case, it is more likely that the required amount of funds will be provided. In such a situation, a decrease in the cash gap will be accompanied by an increase in the cost of servicing the loan.
• If it is possible to provide property as security, then only that which does not require state registration should be used.
• You should contact the bank in advance. For example, if the old contract ends in a month, then it's time to draw up a new agreement.on same conditions. Next month, most of the proceeds will go to repay the loan, and current needs will be covered by a new loan.

This situation can be seen in detail with an example.

The organization received its first loan in July 2016 in the amount of 5 million rubles secured by premises. The terms of the agreement stipulate the repayment of the loan in two installments: in August and October of the same year, 2.5 million rubles each. In October, the organization issued another loan on the same terms for 5 million rubles. The contract stipulates a limitation that the total amount of the loan should not exceed 5 million rubles. The proceeds received in August will be used to repay the first loan. All company payments will be closed by the second loan. Such a scheme will help preserve working capital.

drawing conclusions

A cash gap is a lack of money that is easier to prevent than to eliminate its consequences. Therefore, a company should conduct a thorough and competent analysis of all financial flows of the organization, constantly contact debtors, try to solve problems together and be on good terms with suppliers. In fact, this is the basic principle of money management.