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

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

More about the situation

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

You should not think that a temporary cash gap is the result of improper work of managers or miscalculations in accounting. Most often, its causes are quite objective. However, managers are required to minimize such phenomena.

The main causes

Not only internal, but also external factors can cause delays between work processes. They can equally affect the functioning of the enterprise. However, external circumstances are much more difficult to predict.

The main reasons for cash gaps are as follows:

• revocation of the license and other force majeure situations that arose in the serviced bank;
• change of address of the organization, requiring re-registration in various bodies;
• switching to another taxation system that cancels or includes payment of VAT;
• unoptimized working methods;
• hitches by debtors;
• difficulties exporting as a result of sanctions or other prohibitions;
• complication of legislation in the country.

There are many more circumstances that can lead to the appearance of pauses between current processes. However, in most cases they are due to receivables.

Emergency Risk Management

Business leaders should always reflect on how to avoid cash gaps in the business process. Risk management is based on general principles and includes competent distribution of sales markets, expanding the range of products, insurance and minimizing negative consequences. Documents must be prepared in order to provide the opportunity to raise the necessary funds in case of delays.

Sometimes organizations issue a certain amount of securities issued in the name of proxies. In some cases, special assignment agreements are concluded that allow the transfer of claim rights for certain obligations. Copies of these documents are usually notarized. They can be useful for providing banking institutions for financial monitoring purposes .

So that the cash gap does not occur regularly, you should carefully consider the terms of the signed contracts. It is desirable to provide for the possibility of prepayment in them and to prescribe the terms of payments before the end of the previous month. A bank deposit with the possibility of early disclosure can be a useful tool. To diversify the risk, it is advisable to have a current account with another bank.

When working regularly with companies' balance sheets, counter obligations are often identified. A rational solution would be to partially repay them so that it would be possible to use them as an effective tool for delays. They can be used to attract resources as quickly as possible.

Identification Features

Without an idea of ​​how to determine the cash gap, it is impossible to effectively work at the enterprise. To avoid such processes, it is necessary to carefully analyze cash flows and find vulnerabilities. If at the very beginning of the production cycle there is a negative balance, then we can say that an unpleasant moment has arrived.

It is also required to study the range of goods in the warehouse. If their share overlaps the subsequent supply, then the situation cannot be called critical. However, only by these indicators it is impossible to identify the cash gap. The calculation formula is as follows:

OS + DP-PP = KO.

The table provides a description of the legend.

Calculations according to this formula should be made on all working days for the timely detection of delays. If the calculations turned out to be a negative number, then you should carefully reflect on the first two points in order to block their payments to suppliers.

Common onset errors

Many CFOs make inaccurate decisions.

1. Short-term loans are issued that do not bring tangible results. But they increase the amount of future payments, as interest is accrued for them. Such a strategy can bring success only 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 production costs incurred.
3. The raw materials needed for production are paid at the end of the period, which violates the rhythm of the enterprise.
4. Parts of available capital are sold to larger organizations.

Actions during cash gap

Although many companies have enough reserves, it is still not always possible to completely protect the company from delays. Panic in this situation is not worth it. It is necessary to assess the likely consequences of non-payment and determine the available margin of time for 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 letters of guarantee, in which the date of deposit of funds will be indicated.
2. Early disclosure of a deposit in a bank.
3. Attracting third parties to pay directly on the obligations of the company.
4. Submission of written requests to consumers to enhance the repayment of the resulting debt.
5. Presentation as payment for securities.

After the onset of better times, it is necessary to replenish internal reserves, from which money was taken in a difficult period. It will not be superfluous to separately note the consumers and suppliers who have helped the enterprise. A positive reputation of the organization, on the formation of which it is necessary to work constantly, will help smooth out the negative points.

What do management failures lead to?

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

Often, money is taken from the turnover for investment in a new project that has prospects for quick profit. Miscalculations by management in this situation threaten organizations whose income is the result of partnership activities and a negative position in the business environment.

Alternative solutions

There are completely different ways of covering temporary gaps. The first one is to provide a commodity loan directly to the supplier, and the second is to stimulate consumers to make early payment of bills issued by the enterprise.

Holding companies may:

• form a treasury that provides the opportunity to optimize working capital, while reducing the amount of the loan;
• make centralized procurement of certain categories of goods, saving resources by increasing the volume of supply;
• get an overdraft to cover the missing funds.

Final part

As a guide for beginners, a methodology for planning temporary cash gaps in the city budget can be taken. It is created in full accordance with Russian legislation to determine the amount of debt formed at certain intervals.