Chapter 5 : Short-term Cash flow planning with the help of open items
The short-term Cash flow planning focuses on the precise monitoring and management of cash flows and liquidity reserves over a period of a few weeks to a year. This type of planning helps to avoid financial bottlenecks and creates a solid basis for a stable financial future.
Chapter 1 - Introduction Cash flow planning
Chapter 2 - Why Cash flow planning at all ?
Chapter 3 - Quality of the Cash flow planning
Chapter 4 - How to create a Cash flow planning?
Chapter 5 - Short-term Cash flow planning
Chapter 6 - COMMITLY common procedure
The focus is on open item management. Open items influence the current and future financial status of a company, as they are receivables that have been issued but not yet paid. For the short-term Cash flow planning , the period of payment deadlines for incoming and outgoing invoices is considered.
The amount of open items provides information about the development of the account balance. They show the expected incoming and outgoing payments and are therefore an important indication of a company's Cash position .
Careful management of outstanding payments enables companies to plan and optimize their cash flow effectively. optimization of their cash flow. Through analysis, trends in account balances can be identified and Cash position can be managed on the basis of expected incoming and outgoing payments.
Short-term Cash flow planning with open items
In this 7-minute video, we show you how you can use COMMITLY and open item management to achieve precise short-term financial planning create.
In COMMITLY: "Plan beats open items".
The "either-or principle" for forecasts / in the forecast
COMMITLY is an innovative solution that works according to the "either-or principle" in the forecast works. Either an existing plan value is used or - if no plan exists - the total of the open items is taken as the basis. This principle is reviewed each time the plan is changed or the open items change. This principle enables efficient and flexible forecasting and prevents double planning:
If a planned value is stored in a category for a month, the open items serve as a guide to target achievement.
One example:
Planned for April are +100€. In addition, there are open items in the amount of +80€which represents an expected target achievement of 80 %. is achieved.
Next step: Ensure that the 80€ is received (open item management) and invoice a further €20 (Sales) in order to achieve the full target.
If in a category no planned value is available for the month, the sum of the open items due is adopted as the forecast value.
In this example: The forecast then shows +80€.
Why is the "either-or principle" so valuable here?
Working with defined scenarios enables companies to identify the need for action at an early stage and adapt strategies accordingly.
Another key advantage of the "either-or principle" lies in the improved accuracy of the forecastsalso for short-term Cash flow planning. By limiting oneself to the most probable scenarios and and comparing these with current data and trends compared with current data and trends realistic forecasts can be created.
This leads to an optimized planning and helps allocate resources more effectively. Instead of considering a multitude of possible scenarios and being overwhelmed by too many analyses, the "either-or principle" a targeted control under clearly defined conditions.
Open items provide an early indication of the possible achievement of the short-term target Cash flow plan:
The short-term Cash flow planning is therefore not just a financial management tool, but a key component of corporate strategy. It enables us to react proactively and flexibly to changes in the business environment.
This is the perfect transition to the medium to long-term Cash flow planning.
Short-term vs. long-term
Cash flow planning
In order to understand the financial control mechanisms of a company, it is important to distinguish between the short-term and long-term Cash flow planning to differentiate. Short-term Cash position planning focuses on the immediate future and includes open item management in order to identify bottlenecks at an early stage. Long-term planning covers a period of more than one year and guides the strategic direction of the company. It includes investment decisions, the procurement of equity or debt capital and the development of sustainable liabilities and receivables.
In this case, the open items serve less as a basis, but rather as an indication of future cash flow developments and the payment behavior of debtors and creditors. In the short-term Cash flow planning In contrast, the focus is on flexibility in dealing with uncertainties and unforeseeable events. In order to be able to react to spontaneous challenges, a dynamic Cash flow planning must be available for a foreseeable period of time and allow for adjustments.
In contrast to the short-term Cash flow planning method, the long-term method is more preventative in nature. It aims to prepare the company for the financial challenges of the future and to achieve strategic goals. Despite these differences, both types of planning should be taken into account. The information from the short-term Cash flow planning - in particular the analysis of open items - provides valuable insights for the long-term strategy. These provide information on how effectively the company manages short-term receivables, how this affects future financing and how the payment behavior of customers develops.
Cash flow planning made easy - All decisions firmly under control.
COMMITLY is your software tool for better cash flow management - developed by financial experts and entrepreneurs who know what is important when it comes to cash flow and Cash flow planning.