loan is the lending of money from one individual, organization or entity to another

individual, organization or entity. A loan is a debt provided by an entity (organization or

individual) to another entity at an interest rate, and evidenced by a promissory
note which specifies, among other things, the principal amount of money borrowed, the
interest rate the lender is charging, and date of repayment. A loan entails the
reallocation of the subject asset(s) for a period of time, between the lender and
the borrower.
In a loan, the borrower initially receives or borrows an amount of money, called
the principal, from the lender, and is obligated to pay back or repay an equal amount of
money to the lender at a later time.
The loan is generally provided at a cost, referred to as interest on the debt, which
provides an incentive for the lender to engage in the loan. In a legal loan, each of these
obligations and restrictions is enforced by contract, which can also place the borrower
under additional restrictions known as loan covenants. Although this article focuses on
monetary loans, in practice any material object might be lent.
Acting as a provider of loans is one of the principal tasks for financial institutions such
as banks and credit card companies. For other institutions, issuing of debt contracts
such as bonds is a typical source of funding.
'Cash sales' are defined as sales in which the buyer's payment obligation to the seller
is settled on delivery, for example by payment in cash or by debit or credit
card. Sales via the internet paid by credit card are considered cash sales if the actual
charge to the credit card is made on delivery.
Accounts receivable is a legally enforceable claim for payment held by a business for
goods supplied and/or services rendered that customers/clients have ordered but not
paid for. These are generally in the form of invoices raised by a business and delivered
to the customer for payment within an agreed time frame. Accounts receivable is shown
in a balance sheet as an asset. It is one of a series of accounting transactions dealing
with the billing of a customer for goods and services that the customer has ordered.
These may be distinguished from notes receivable, which are debts created through
formal legal instruments called promissory notes. Accounts receivable represents
money owed by entities to the firm on the sale of products or services on credit. In most
business entities, accounts receivable is typically executed by generating
an invoice and either mailing or electronically delivering it to the customer, who, in turn,
must pay it within an established timeframe, called credit terms[3] or payment terms.
The accounts receivable department uses the sales ledger, because a sales ledger
normally records:[4]

The sales a business has made.

The amount of money received for goods or services.
The amount of money owed at the end of each month varies (debtors).
The accounts receivable team is in charge of receiving funds on behalf of a company
and applying it towards their current pending balances.
Collections and cashiering teams are part of the accounts receivable department. While
the collections department seeks the debtor, the cashiering team applies the monies
received.
Accounts receivable is the money that a company has a right to receive because it had
provided customers with goods and/or services. For example, a manufacturer will have
an account receivable when it delivers a truckload of goods to a customer on June 1
and the customer is allowed to pay in 30 days.
Sale of receivables and other loans to a third party. An asset sale is a non recourse
cash sale of assets from a bank or government agency to a third party. The purpose of
an asset sale is generally to increase cash flow, reduce bad debt risk and liquidation
of assets.Accounts receivables are also known as trade receivables. Accounts
receivable are reported as a current asset on a company's balance sheet. Good
accounting requires that an estimate be made for the amount that is unlikely to be
collected. That estimate is reported as a credit balance in a related receivable account
such as Allowance for Doubtful Accounts. Any adjustments to the Allowance balance
will also be recorded in the income statement account Uncollectible Accounts Expense.

A capital contribution is a contribution of capital, in the form of money or property, to

a business by an owner, partner, or shareholder. The contribution increases
theowner's equity interest in the business. When you start a business, you will have to
put in money to get it going.

Revenues received in advance are reported as a current liability if they will be earned
within one year. The accounting entry is a debit to the asset Cash for the amount
received and a credit to the liability account such as Customer Advances or Unearned
Revenues.

A cash budget focuses on the productivity of various revenue sources, the timing of
surpluses, and the amounts likely to be available. Management must develop policies to
tap and mobilize these resources to meet organizational needs. Cash mobilization falls
into two functional areas: (1) acceleration of receivables and (2) control of
disbursements. Receivables are those funds that come into the organization's treasury;
disbursements are funds that must be paid out to vendors and others who provide
services at a fee to the organization. Disbursements also include salaries and wages for
the organizational staff. Accelerating Collections

From the standpoint of fund availability and borrowing costs, the most effective
collection system is one that minimizes the lapse between the time money is due to be
received by the organization and the time the money is available for disbursement. The
optimum system would be immediate wire transfer from the payee to the organization
when payment is due. Given the different types of payments and necessary
documentation that must be part of each payment, however, such a system is not
feasible.

The flow and availability of cash to the organization can be expedited by collection
systems that provide for advance billing and payment on or before receipt of goods and
services. Such systems should include provision for the processing of payments
separate from accounting documentation. The aggregate benefit of sound collection
procedures is an increase in the productivity of cash as a working asset. Systems that
bill and subsequently process documents and remittances together before to deposit
retard the availability of funds to the organization.

Accelerated collection of money owed also reduces an organization's borrowing costs

and enhances its ability to earn additional income. Since the 1950s, when this principle
gained widespread acceptable, banks and other private firms have conscientiously
developed techniques to aid corporations in collecting and processing receivables and
in making funds available quickly. The techniques used to accelerate receipts include
lockbox services, pre-authorized checks, and concentration banking.

Controlling Disbursements

Disbursements represent the outflow of funds in the form of checks issued and cash
payments made. Delaying cash outflows enables an organization to optimize earnings
on available funds. Good cash management practices generally dictate that
disbursements be made only when due. The timing of disbursements is a very important
decision that has implications for the liquidity position of the organization.

In large organizations, the potential for great variability in the quality and form of
disbursement decisions often presents a considerable challenge to the cash manager.
Two approach have been devised for meeting this challenge:

(1) Centralize, to the extent practical, the management of payables, particularly those
involving large dollar amounts.

(2) Establish administrative limits on the amount of disbursements particular

organizational units are authorized to make within specified time periods.

The first objective is achieved through the use of a central depository account. The
second objective is designed to control subsidiary working funds and is achieved
through a zero balance account.

Cash flow forecasting or cash flow management is a key aspect of financial

management of a business, planning its future cash requirements to avoid a crisis of
liquidity. Cash flow forecasting is important because if a business runs out of cashand
is not able to obtain new finance, it will become insolvent. What is meant by the term
cash flow forecast?
The forecast estimates what the cash inflows into the bank account and outflows out of
the bank account will be. The result of the cash flow forecast is an estimate of the
bank balance at the end of each period covered (normally this is for each month).
Cash flow forecasting or cash flow management is a key aspect of financial
management of a business, planning its future cash requirements to avoid a crisis
of liquidity.
Cash flow forecasting is important because if a business runs out of cash and is not
able to obtain new finance, it will become insolvent. Cash flow is the life-blood of all
businessesparticularly start-ups and small enterprises. As a result, it is essential that
management forecast (predict) what is going to happen to cash flow to make sure the
business has enough to survive. How often management should forecast cash flow is
dependent on the financial security of the business. If the business is struggling, or is
keeping a watchful eye on its finances, the business owner should be forecasting and
revising his or her cash flow on a daily basis. However, if the finances of the business
are more stable and 'safe', then forecasting and revising cash flow weekly or monthly is
enough.[1] Here are the key reasons why a cash flow forecast is so important:

Identify potential shortfalls in cash balances in advancethink of the cash flow

forecast as an "early warning system". This is, by far, the most important reason for
a cash flow forecast.
Make sure that the business can afford to pay suppliers and employees. Suppliers
who don't get paid will soon stop supplying the business; it is even worse if
employees are not paid on time.
Spot problems with customer paymentspreparing the forecast encourages the
business to look at how quickly customers are paying their debts. Notethis is not
really a problem for businesses (like retailers) that take most of their sales in
cash/credit cards at the point of sale.
As an important discipline of financial planningthe cash flow forecast is an
important management process, similar to preparing business budgets.
External stakeholders such as banks may require a regular forecast. Certainly, if the
business has a bank loan, the bank will want to look at the cash flow forecast at
regular intervals.

Corporate finance[edit]
Definition
In the context of corporate finance, cash flow forecasting is the modeling of a company
or entity's future financial liquidity over a specific timeframe. Cash usually refers to the
company's total bank balances, but often what is forecast is treasury position which is
cash plus short-term investments minus short-term debt. Cash flow is the change
in cash or treasury position from one period to the next period.
Methods
The direct method of cash flow forecasting schedules the company's cash receipts
and disbursements (R&D). Receipts are primarily the collection of accounts
receivable from recent sales, but also include sales of other assets, proceeds of
financing, etc. Disbursements include payroll, payment of accounts payable from recent
purchases, dividends and interest on debt. This direct R&D method is best suited to the
short-term forecasting horizon of 30 days or so because this is the period for which
actual, as opposed to projected, data is available.[2]
The three indirect methods are based on the company's projected income statements
and balance sheets.

The adjusted net income (ANI) method starts with operating income
(EBIT or EBITDA) and adds or subtracts changes in balance sheet accounts such
as receivables, payables and inventories to project cash flow.
The pro-forma balance sheet (PBS) method looks straight at the projected
book cash account; if all the other balance sheet accounts have been correctly
forecast, cash will be correct, too.
Both the ANI and PBS methods are best suited to the medium-term (up to one year)
and long-term (multiple years) forecasting horizons. Both are limited to the monthly or
quarterly intervals of the financial plan, and need to be adjusted for the difference
between accrual-accounting book cash and the often-significantly-different bank
balances.[3]

The third indirect approach is the accrual reversal method (ARM), which is similar to
the ANI method. But instead of using projected balance sheet accounts, large
accruals are reversed and cash effects are calculated based upon statistical
distributions and algorithms. This allows the forecasting period to be weekly or even
daily. It also eliminates the cumulative errors inherent in the direct, R&D method
when it is extended beyond the short-term horizon. But because the ARM allocates
both accrual reversals and cash effects to weeks or days, it is more complicated
than the ANI or PBS indirect methods. The ARM is best suited to the medium-term
forecasting horizon.[4]
Uses
A cash flow projection is an important input into valuation of assets, budgeting and
determining appropriate capital structures in LBOs and leveraged recapitalizations.
Here are five ways to use surplus cash that will benefit your business.

Pay Down Your Debt

According to Debt.org, 49 percent of small-business owners are in major debt. Debt can
damage your business by forcing you to use profits to make payments on interest
instead of reinvesting in growth or improvement. In addition, the interest on those loans
can quickly drain money that would otherwise be counted as profit. But if you use your
cash surplus to pay down or completely pay off those debts, youll free up money you
need to grow your business, while saving on interest. Be sure to pay the debts with the
highest interest rates first.
 Reward Loyal Employees with Raises or Bonuses
After years of pay freezes, a 2013 study by Glassdoor shows that 42 percent of
employees were expecting a pay raise in 2014. Whats more, the fear of losing their
jobs is at an all time low since 2008. With the economy picking up and thoughts of
business growth a serious consideration, it makes sense to lock in your loyal and
productive employees before the competition approaches them with an offer. While the
average pay raise remains at just 3 percent, according to Towers Watson, top
performers can expect raises of about 4.7 percent.

Reinvest in the Business

The Wells Fargo/Gallup poll found that 50 percent of business owners surveyed said
that they planned to increase the amount of money they spend for capital investments,
including technology upgrades, in the next 12 months. After years of cutting back, it
might be the right time for your business to make some capital investments or embark
on that new marketing campaign, hire a new salesperson, build a mobile app, or
whatever else has been on the back burner while waiting for the economy to improve.

Increase Your Own Salary

How long has it been since youve given yourself a raise? Youve likely put blood,
sweat, and tears into making sure your business made it through the past few rocky
years, and now that you have some extra cash in the bank, you could choose to reward
yourself for the effort. You can use the U.S. Census Bureaus Earnings by Occupation
and Education tool to compare your current salary to what others in the field make to
help you decide how much of an increase youll take.

Put Some Cash Aside for Unexpected Emergencies

If theres one thing small-business owners learned over the past few years, its that
anything can happen. Many entrepreneurs got caught in the trap of needing additional
funds, yet remained unable to get a loan, for example. Now that you have some extra
cash, it might be a smart move to set some aside for unforeseeable events. That way,
youll be better able to withstand any storms that come your way.

Having surplus cash is nice, but make sure that you use it in a way that will benefit your
business in the long run.

Primary Sources of Liquidity

The primary sources of liquidity include the sources that a firm uses for its regular daily
operations. This includes:
Cash
Cash received from sales
Collection of receivables
 Short-term investment, and others
Short-term Funding
Trade credit from suppliers
Working capital loans from banks
Cash flow management
The firm can also generate working capital by effectively managing its cash.

Secondary Sources of Liquidity

These are the sources of liquidity that are not normally a part of the regular operations.
However, in times of need, the firm may use these sources. These include:
Renegotiating existing debt contracts
Liquidating short-term and/or long-term assets
Filing for bankruptcy
Utilizing the secondary sources of funding can impact the companys financial structure
and may even affect its operations. This also indicates that the firms financial condition
is deteriorating.

Liquidity Sources
To provide you with alternative sources of liquidity we offer several funding programs for
your consideration.

Certificates of Deposit
Current CD Calendar
Depository Trust Company (DTC) eligible issuance Manage your liquidity with the
ability to take in a large deposit by issuing and booking one CD in your bank's
name. Your bank can structure and price the CD according to your needs.
- DTC Rate Grid
Municipal and other Governmental Entities Your bank may be eligible to obtain
funds from a Bankers' Bank administered deposit program. As placement agent,
Bankers' Bank works with multiple municipalities and governmental entities to place
Brokered CDs into FDIC insured institutions.

Federal Funds - Purchased

Your bank may be eligible to purchase overnight Federal Funds from Bankers' Bank.
If you currently have a Bankers' Bank Federal Funds line of credit and would like an
updated verification, you may request here.
For more information, contact your Correspondent Banker.
Unless otherwise stated, all products and services represented on this page are not
insured by any federal government agency including the FDIC, are not guaranteed by
this financial institution, are not obligations of this financial institution, and involve risk
including possible loss of principal.

Cash Flow Forecasting Definition

Cash Flow Forecasting is one of the three types of cash forecast (Graham and Coyle,

2000), balance sheet forecasts and income based cash forecasts being the other two.

Cash Flow-based forecasts are estimates of the amount and timing of cash receipts and

payments, net cash flows and changes in cash balances split by considered periods up

to a year. It helps to manage daily cash flows. In fact, combining these dynamic account

transactions and static account balances a company can yield the amount of cash

remaining in bank accounts at the end of a period (Ray, 2010).

What is cash flow forecasting?

Cash flow forecasting is about predicting when money will move in and out of your bank
account in the future. Its easy to see how much cash you have in the bank today (you
just check your bank balance). But if you want to know what your bank balance will be
next week, or next month, or next quarter, you need to do a cash flow forecast.
Why do cash flow forecasting?
The amount of cash you have in your bank account dictates what you can and cannot
do. Say its the end of the month and you need to pay your employees. It doesnt matter
how much money you are owed; either you have the cash to pay your staff, or you
dont.
This is just one example of why it is incredibly important for business owners to know
how much money will be available to them at any point in the future.
If a business runs out of cash and is not able to obtain new finance, it will become
insolvent. It is no excuse for management to claim that they didnt see a cash flow crisis
coming.
So in business, cash is king. Cash flow is the life-blood of all businesses particularly
start-ups and small enterprises. As a result, it is essential that management forecast
(predict) what is going to happen to cash flow to make sure the business has enough to
survive.
Here are the key reasons why a cash flow forecast is so important:
Identify potential shortfalls in cash balances in advance think of the cash flow
forecast as an early warning system. This is, by far, the most important reason for a
cash flow forecast.
Make sure that the business can afford to pay suppliers and employees. Suppliers
who dont get paid will soon stop supplying the business; it is even worse if employees
are not paid on time.
Spot problems with customer payments preparing the forecast encourages the
business to look at how quickly customers are paying their debts. Note this is not
really a problem for businesses (like retailers) that take most of their sales in cash/credit
cards at the point of sale.
As an important discipline of financial planning the cash flow forecast is an
important management process, similar to preparing business budgets.
External stakeholders such as banks may require a regular forecast. Certainly if
the business has a bank loan, the bank will want to look at cash flow forecasts at
regular intervals.
In the business world, cash is king. You may anticipate large profits in the next six
months, but if you don't have enough cash coming in to cover your expenses during that
time, you may not get a chance to realize those earnings. That's why it's important for
all businesses to develop the right strategies to maintain a healthy cash flow. The
following tips can help:
1. Speed up receipt of cash.
Any steps you can take to shorten your receivables will boost your cash flow. For
instance, send out invoices immediately after the delivery of goods or services. Another
idea is to change your payment terms - for example, from 60 days to 30 days.
Offer a small discount to customers who pay their bills early and charge a penalty to
those who pay late. Monitor your receivables on a weekly or bi-weekly basis and follow-
up with late payers when appropriate.
Financial tip: Offer credit carefully. Do a financial check on new customers before
offering them credit. Also ask for and check their business references.
2. Use your business credit card. Consider using your business credit card to pay
suppliers and make purchases. Learn about your card's grace period, and take
advantage of it - you may have up to 21 days after receiving your statement to make the
payment. Some cards also come with cash-back features. Speak to your business
banker about the card that's right for you.
3. Encourage use of payment cards. Depending on the nature of your business, you
may want to consider accepting credit card and debit card payments. This allows you to
receive next-day value for your sales and services, without the need to handle cheques
and make deposits.
Whether you serve customers over the counter or online, a merchant services solution
makes it easy to process payment cards. Don't forget to compare costs when
investigating a merchant services solution.
4. Analyse your cash flow. Many businesses go through cyclical highs and lows.
Clothing retailers, for example, typically have their best months in December, while
schoolbook and uniform suppliers do well in at the beginning of a school year.
A cash-flow analysis can highlight the cycles in your business. This information can be
used in many ways, such as timing your borrowing, arranging the right amount of
staffing, and boosting your marketing efforts during lulls.
5. Work with an accountant. The services of an accountant can serve as an
investment rather than an expense. An accountant can review cash-flow projections and
results, provide insights into areas that you may have overlooked, and help you
anticipate and plan for cash-flow problems.
6. Get a line of credit. Having a line of credit in place to cover short-term needs and
emergencies is a much more efficient way to manage your cash flow than trying to get a
loan in a hurry. Rates are competitive, you can draw from your line of credit when you
need it, and you pay interest only on the amount borrowed. Arrange for a line of credit
before you fall short.
7. Put your cash to work. A high-interest savings account for business allows you to
earn a competitive rate of interest on your cash on hand, but the funds are accessible
whenever you need them. You earn interest every day on each dollar saved, and can
withdraw the money whenever you need to.
8. Longer term financing. Consider taking a loan to purchase a piece of equipment,
car, or computer system instead of buying it outright with cash/savings. You'll free up
some cash that can be used to tide the business over when cash flow is tight.
9. Consider "continuity" sales. Another way to improve your cash flow is by offering
deals on your products or services to customers who buy for a fixed period of time. A
subscription-based product such as a newsletter or magazine is a good example of how
continuity sales work: you pay the publisher upfront for a one-year or two-year
subscription; in return, you get a better deal on the cost of the newsletter.Continuity
sales can be made to work for almost anything. Your customers save money on a
package of goods or services, and you get the cash upfront.
10. Invest in your business. Any steps you can take to build your business, such as
training staff or boosting your marketing, can help improve cash flow.

Cash mobilization involves techniques used to assemble funds and make them readily
available for investment

Maintaining good relations with banks, savings and loan associations, investment
bankers, commercial paper dealers, and security analysts is an important part of cash
management.

Bankers prefer compensating balances to fee payments because deposits are the main
source of a bank's loanable funds.

A cash budget should provide an estimate of the organization's cash requirements for
disburse-ment by months, weeks, or days.

The most attractive instruments are securities supported by the full faith and credit of
the federal government.

Other relatively risk-free securities are: time deposits, time certificates of deposit
(CDs), commercial paper, banker acceptances, and repurchase agreements.

Cash Mobilization

Cash mobilization involves: (1) acceleration of receivables and (2) control of

disbursements.
The flow and availability of cash to the organization can be expedited by collection
systems that provide for advance billing and payment on or before receipt of goods
and services.

Techniques used to accelerate receipts include:

(1) Lockbox services involve the use of special post office boxes to intercept
payments and accelerate deposits.

(2) A preauthorized check (PAC) is a signatureless demand instrument used to

accelerate the collection of fixed payment types of obligations.

(3) Concentration banking mobilizes funds from decentralized receiving

locations into a central cash pool, enabling the cash manager to monitor only a
few cash pools, thereby facilitating better cash control.

Disbursements are the outflow of funds in the form of checks issued and cash
payments made.

Delaying cash outflows enables an organization to optimize earnings on available

funds.

(1) Centralize, to the extent practical, the management of an organization's

payables, particularly those involving large dollar amounts.

(2) Establish administrative limits on the amount of disbursements particular

organizational units are authorized to make within specified time periods.