Cash control before the payment, not after it

Cash can be controlled in two ways. The first is a plan-versus-actual report at the end of the month. It shows an overspent item when the money has already left the account. The second is a gate in the process: no payment is made until a request for it is approved, checked against a limit and placed on a day when the money is there.

Where a payment is stopped

The gate is the payment request. The initiator states the recipient, the amount, the purpose and the basis, such as a contract or an order. Treasury adds the account the money will leave from.

In 1C:ERP a request has four statuses: not approved, approved, to be paid and rejected. A payment document is created from a request with the status "to be paid", and the system checks that outgoing payments do not bypass requests. An exception is set for a particular bank account or cash desk, so every exception is a decision somebody made.

Who approves and where it is recorded

The simplest approval has one step: a responsible person confirms the request, and the system records who did it. Real routes are longer and depend on the request: its amount and currency, the department, the recipient, and whether it is above the limit.

Such routes are set up in 1C:Document Management, which exchanges data with 1C:ERP. Each step has its approvers, a deadline and a condition, for example an amount above a threshold. Every approver receives a task, and the result returns to 1C:ERP as the status of the request.

A limit: strict, soft or with a separate route

A limit is the amount that may be spent on a cash flow item in a period, if needed per company or department. It is checked when the request is registered and approved, not when the month is closed.

A strict limit does not let a request through. A soft limit lets it through and shows the overrun in reports. A strict stop on purchases can cost sales when demand is higher than planned, so the workable arrangement is a separate route: a request above the limit is marked and goes to an additional approval. Treasury checks the limit again when it schedules the payment, because no other check follows.

A limit disciplines execution. It does not repair a plan that was inaccurate from the start.

Seeing a cash gap before it happens

Approved requests go into the payment calendar: days against bank accounts and cash desks, with expected receipts, planned payments and the balance at the end of each day. A day with a negative balance is highlighted: a cash gap, seen while there is still time to act.

The kind of shortage decides the response. A shortage on one account is closed by a transfer from another, a shortage in one currency by a conversion. A shortage in the total, counted in one currency, means borrowing, and a surplus there is free cash to place. The treasurer can also move a request to another day or account, postpone it or reject it.

Receipts come from the payment schedules of customer orders and contracts. A receipt that did not arrive on its date is shown as overdue, and the manager responsible for the customer enters a realistic date and amount.

A check list for Monday

The gate works only on complete data. Check four things.

• Cash flow item. Every request carries one. Treasury does not know which budget item a payment belongs to, and without the item no limit can be checked.
• Payment schedules. Every customer order and contract with deferred payment has one, and no overdue receipt stays without a new date.
• Exceptions. The list of accounts and cash desks that pay without a request is short, and each entry has an owner.
• Route above the limit. It is written down who approves such a request.