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Cash Flow Management Checklists

Assessing Cash Flow and Bank Lending Requirements

Checklist Description

This checklist explains what to look out for when assessing cash flow and what the banks require from a business when lending money and assessing cash flow.

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Lack of cash flow is a major cause of a business failing as, even though it may be turning a profit, if the money does not flow in on time the business will not be able to settle its debts. Cash flow is basically the measure of a company’s financial health, showing the amount of cash generated and used by a company in any given period. Cash flow is essential to ensure solvency, as having enough cash ensures that creditors and employees can be paid on time. Banks require companies to show the difference between sales and costs within a specified period, which act as an indicator of the performance of a business better than the profit margin. Sales and costs, and therefore profits, do not necessarily coincide with their associated cash inflows and outflows. Even though a sale has been secured and goods delivered, payment may be deferred as a result of credit to the customer, yet suppliers and staff still have to be paid and cash invested in rebuilding depleted stocks. The net result is that although profits may be reported, the business may experience a short-term cash shortfall.

The main sources of cash flow into a business are receipts from sales, increases in bank loans, proceeds of share issues and asset disposals, and other income, such as interest earned. Cash outflows include payments to suppliers and staff, capital and interest repayments for loans, dividends, taxation, and capital expenditure. Cash flow planning entails forecasting and tabulating all significant cash inflows and analyzing in detail the timing of expected payments, which include suppliers, wages, other expenses, capital expenditure, loan repayments, dividends, tax, and interest payments.

A computerized cash flow model can be used to compile forecasts, assess possible funding requirements, and explore the financial consequences of other strategies. Computerized models can help prevent major planning errors, anticipate problems, and identify opportunities to improve cash flow and negotiate loans.

Banks must ensure that a business is viable, which entails asking pertinent questions. Lenders will insist on up-to-date information on the type of industry, management capabilities and experience, business plans and daily operations, key competition, and PR and marketing plans. They have to know that the business makes sense and can repay a loan, and what security is available in case of insolvency. Companies have to keep within their cash limits regardless of anticipated business. Business factoring is an alternative to bank loans—a factoring company buys your credit invoices and provides you with immediate cash in exchange for a small fee ranging between 1.5% and 5.0%. Factoring is more flexible than a bank loan.

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Ensuring good cash flow through a company helps to:

  • increase sales;

  • reduce direct and indirect costs and overhead expenses;

  • raise additional equity;

  • gain the confidence of banks and potentially secure more loans.

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  • If your profit margins are already low, you might not be able to afford bank fees.

  • Banks have a tendency to increase fees and charge for late payments.

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Action Checklist

It is essential to keep track of your cash and not allow any surplus to sit idle. Accounts must be carefully monitored and cash invested to maximize returns. There are many ways to increase cash flow:

  • reducing credit terms for historically slow payers;

  • reviewing customer payment performance;

  • becoming more selective when granting credit;

  • seeking other ways to pay rather than all in one installment, such as deposits or staggered payments;

  • reducing the amount of time of the credit terms;

  • invoicing immediately the work has been done;

  • improving collection systems for billing;

  • adding late payment charges.

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Dos and Don’ts


Do understand the way your company works, using a detailed analysis of banking procedure and taking into consideration:

  • overdraft facilities and investment accounts;

  • the number of monthly transactions;

  • the number of written monthly checks;

  • how customers pay you;

  • the suitability of electronic banking for your business;

  • cash access facilities;

  • interest income;

  • overall expenses and fees.


  • Don’t overestimate sales forecasts.

  • Don’t underestimate costs.

  • Don’t underestimate delays in payments.

  • Don’t forget to check your debtors’ credit histories carefully.

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Further reading


  • Fight, Andrew. Cash Flow Forecasting. Oxford: Butterworth-Heinemann, 2006.
  • Mulford, Charles W., and Eugene E. Comiskey. Creative Cash Flow Reporting and Analysis: Uncovering Sustainable Financial Performance. Hoboken, NJ: Wiley, 2005.
  • Reider, Rob, and Peter B. Heyler. Managing Cash Flow: An Operational Focus. Hoboken, NJ: Wiley, 2003.

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