The most common problem of many enterprises is as follows. The company operates in its usual mode, delivers orders, bears any costs. The end of the month is approaching, monthly expenses (rent, salary) need to be paid, and there is not enough money. This situation is called the cash gap.
The main problem of enterprises
Cash gap is an intermediate lack of funds. When the time is right to spend the money, but there are no receipts that were planned, a cash gap arises. Such a problem may appear in all enterprises of any form of ownership. Its occurrence does not always indicate an illiterate enterprise policy.
Reasons for cash shortages
The lack of necessary funds in the accounts can be formed for various reasons. For instance:
- illiterate organization of enterprise finance;
- delays in payments;
- unstable market situation;
- export factors.
When the company plans cash receipts, the timing of these receipts from buyers and the timing of transfers to their suppliers should be taken into account. This is often a problem. Therefore, such an organization of enterprise finance is one of the reasons for the lack of funds in the account.
Also, the reason for the shortage is 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 this situation can negatively affect the sustainability of the company.
There is a so-called temporary cash gap. It can be predicted, in contrast to the constant gap. To minimize the consequences of such a situation, a specific action plan should be developed.
Cash Gap Example
For example, the cash gap is as follows. There is a company that produces bakery products. Once a week, she purchases raw materials from suppliers and pays for them on the day of delivery, that is, in fact. Finished products are sold with a deferred payment of 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. Under the terms of the contract, the company must pay upon delivery of the raw materials, which means that it immediately pays for the order in full. It 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. Next Monday, the purchase of raw materials for the same amount is again made (1.0 million rubles). But on the account of the company remains 900 thousand rubles. Thus, a cash gap of the budget in the amount of 100 thousand rubles arose.
For the company, this threatens with the following consequences:
- late fees;
- shortage of raw materials, which is fraught with a violation of production technology;
- The company's reputation will be in jeopardy.
Forecast for the future
How to calculate the cash gap? Now let's figure it out.
The cash gap is such a problem that can and should be predicted and calculated. To do this, prepare a financial statement of cash flows and identify the types of expenses. If at the beginning of the new operating period a negative value formed in production, then a cash gap has arisen. You should also analyze the remains of raw materials. If there are enough of them before the next purchase, then the situation at the enterprise is quite stable.
There is a formula by which one 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 TOS value is negative, it is recommended that you work with debtors so that their debt can cover the negative value.
Experts recommend doing this calculation every day.
Bug fixes
In order to cover the cash gap, it is necessary to draw up a daily detailed report according to the above formula. You should find out what factor is the cause of its occurrence. After that, you can make further decisions. The following are possible ways to deal.
Daily work with receivables. Every day, you should contact customers, 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 kept in mind: it is necessary to establish adequate loan limits, sort arrears, and reconcile with debtors.
It is necessary to try as little as possible to apply for loans.
The competent preparation of financial statements, the correct calculation of cash flows are important.
How to eliminate the consequences
Cash gap is a situation that is detrimental to the enterprise. It is worth considering mitigation for the company. This can be done in the following ways:
- to suspend mandatory payments of the organization - it is better to pay taxes a month later, since the interest will be much lower than the overpayment in the form of interest on a bank loan;
- invest funds of owners;
- use factoring schemes - banks can redeem accounts receivable from verified counterparties only at a large discount (this method is more suitable for large organizations);
- work with contractors, 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 them);
- get a loan from the bank.
Credit as a way to get rid of the cash gap
One way to mitigate the effects of the 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 adhere to several rules:
- Apply at once to several banks. This will allow you to get a positive credit history in most financial institutions and distribute the total need for cash. New customers will have to wait a bit, but if you apply again, the terms of the loan can be reviewed in favor of the organization.
- When contacting the bank, it is better to apply for an amount greater than the cash gap. In this case, it is more likely that they will provide the necessary amount of cash. In such a situation, a reduction 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 the same conditions. Next month, most of the proceeds will go to repay the loan, and current needs will be covered by a new loan.
Such a situation can be examined in detail using an example.
The organization received its first loan in July 2016 in the amount of 5 million rubles against the 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 loan amount should not exceed 5 million rubles. The proceeds received in August will be used to repay the first loan. All payments of the company will be closed by a second loan. Such a scheme will help maintain working capital.
Draw conclusions
The cash gap is a lack of money, which is easier to prevent than to eliminate its consequences. Therefore, the company should conduct a thorough and competent analysis of all financial flows of the organization, constantly contact with debtors, try to solve problems together and be in good relations with suppliers. In fact, this is the basic principle of cash management.