Corporate Finance

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Corporate Finance

CASH FLOW TIMELINE

Cash flows can be categorized into three types: inflows, outflows, and intra-firm flows. Examples of inflows are
cash collected from customers, cash received on sale of investments, etc. Outflows go to suppliers, creditors,
government (tax), employees and shareholders. Intra-firm flows refer to movement of funds from bank to
head office, between divisions and special account. Cash management involves accelerating inflows and
decelerating outflows. Cash inflow is shown on a timeline diagram in Exhibit 16.3.

Exhibit 16.3 Cash inflow timeline diagram

Sales
order

Order

receipt

intimation

Issue of

invoices

Mailing

of

cheque

Deposit

of

cheque

Receipt

of

fund

Updating

accounting

records

Receipt

of

cheque

The length of the components of the cash flow timeline could range from few minutes, to days or even
months. For instance the segment (2), the production and billing interval, could range from one month to
several months—depending on the company’s business. Cash managers typically concentrate on accelerating
the receipt of checks and encashing them. With technological improvements, the savings in the activity decreases.
The real savings come from managing the other components of the timeline, such as sales order processing
and production billing process. These obviously do not fall under the domain of the cash manager. Often,
executives from different departments neither share information nor talk with each other. Coordination among
departments leads to improved efficiency and savings. The other strategy is to decelerate outflows. The
outflow timeline diagram is shown in Exhibit 16.4.

Exhibit 16.4 Cash outflow timeline diagram

Mailing

of

cheque

Updation

of

records

Issue of
purchase
order

Date of

invoice

Receipt

of

cheque

Deposit

of

cheque

Loss

of

funds

The cash outflow timeline begins with the initiation of the purchase requisition. Again, the focus of
managing disbursements should not be on the banking activities involved but on the other segments. The
objective of cash flow timeline management is to reduce the overall cost.

FLOAT

The cash balance shown in the company’s books of accounts need not coincide with the balance in the books
Rs of the bank. The reason could be that the bank has not collected the checks presented by the company, or