Cash Flow Timing
The cash flow statement as the name suggested is a measure of the cash in and cash out of the
project’s account. The catch is that this may not be the same as the sales figures or expenses for
month, because of the timing of the payment. Listed below are some typical examples of cash-flow timings:
Part payment with placement of order-
this is often used to cover the manufacturer’s costof materials and ensure purchaser’s commitment particularly on imported goods.
Stage payments, or progress payments for items which may take many months tocomplete.
Payment on purchases- this normal practice with retailers.
Monthly payments for labor, rent, telephone and other office expenses.
30 to 90 days credit may be obtained for bought-in items.It may help the learning process to look at the data presented the other way round:
Labor costs are usually paid in the month they are used.
Material costs can vary from an up-front payment, cash on delivery, to 1 to 3 monthscredit.
Bought in services and plant hire costs can be paid 1 to 3 months after delivery.
Income from client- upfront payment, stage payment or progress payment one monthafter invoice.
These figures are usually compiled monthly on a creditors and debtors schedule. It is the projectaccounta
nt’s responsibility to chase up late payments.
Non cash-flow items:
Company assets should not appear on a cash-flow statement as they do notrepresent a movement of cash. Although appreciation and depreciation may represent a flow of value, itdoes not represent an inflow or outflow of cash physically. This also applies to the revaluation of property
and the value of company’s shares.
The cash-flow statement is an integral part of the CPM- it combines with WBS, the estimate, projectschedule and procurement schedule. At this point we need to make some assumptions about thedistribution and profile of the cost and cash-flow with respect to the schedule of the activities. For ease of calculations it is usually assumed to be linear unless otherwise stated. Labor costs are generally uniformover the duration of the activity. Where the cost of materials and other bought-in items may need to bequalified, as stated in previous section, they can vary from up-front payments to 1,2 or 3 months laterdepending on the supplier.
Cost to Complete