Cash Management and Marketable Securities^201
To ensure that these aims are met, it is necessary to know in advance as accurately as
possible when cash shortages or cash surpluses are likely to occur, so that action can
be planned to deal with these eventualities. Cash management depends on cash
forecasting.
The most convenient type of cash forecast for this purpose is the receipts and payment
forecast, because it built up in the same form as that used for recording actual transactions
in the books of account. A typical form of receipts and payment forecast is illustrated
below, and it covers a period of three months with monthly rests.
The first item, collection of debts, is derived from two sources:
l The outstanding debtors list at the commencement of the forecast period. Such
lists should be under continuous review as part of the companyís credit control
procedure, and it should be possible to enter the expected collections under the
various future months;
l Estimates of sales invoicing over the next three months. The invoice estimates
will be converted into collection estimates using the companyís normal credit
period, with adjustments for any major items to which special credit terms apply,
or where delays may be anticipated. The collaboration of the sales department is
needed in developing these forecasts.
Other cash receipts may include cash sales (probably extrapolated from past experience),
interest receivable at known due dates, and dividends receivable so far as these can be
forecast.
A major item of cash outflow will be payments to suppliers. It will be convenient for
control if all items that are dealt with through the purchase ledger are grouped together,
though various managers will be involved in forecasting transactions of different types.
Basically the purchasie manager must be required to prepare a forecast of purchase
orders due to be placed month by month.