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Cash Flow Statement

A cash flow statement is a financial report that shows how changes in cash flow are related to the company’s operations, investing activities, and financing activities. The cash flow statement format includes three main sections: operating activities, investing activities, and financing activities. Understanding how these sections work together to provide a complete financial picture plays a crucial role in cash flow management.

What Are Operating Activities on a Cash Flow Financial Statement?

These refer to the cash flows that arise from a company’s primary business activities. The operating section of the cash flow statement includes cash inflows and outflows from revenue, expenses, gains, and losses.

What Are Investing Activities on a Cash Flow Statement?

These cash flows arise from a company’s holdings of long-term assets, such as plant and equipment. This section of the cash flow statement includes cash inflows and outflows from the sale of investments, purchases of investments, and changes in investment values.

What Are Financing Activities on a Cash Flow Report?

These cash flows arise from a company’s activities with its creditors and shareholders. This section of the cash flow statement includes cash inflows and outflows from the issuance of debt, the repayment of debt, the payment of dividends, and the sale or repurchase of stock.

What Is the Difference Between the Direct and Indirect Methods of Creating Statements of Cash Flows?

When you look at the line items on a direct vs indirect statement of cash flows, you notice immediate differences. So, what do they mean and what is the basis for the different items? The direct method focuses on the company’s cash inflows and outflows from operating activities. This relies on the tallying up of revenue and expenses. The indirect method focuses on the company’s net income and then adjusts for items that do not affect cash flow.

What Can Managers Learn From Reviewing the Corporate Cash Flow Statement?

Managers rely on this important tool when assessing a company’s financial health and making decisions about its future. These are some of the main takeaways:

  • Whether the company is generating positive or negative cash flow from its operations
  • How much cash the company has available to reinvest in its business or pay down debt
  • Whether the company is able to finance its operations, capital expenditures, and dividend payments from its cash flow
  • Whether it needs to raise additional funding

What Is Negative vs Positive Cash Flow?

Negative cash flow shows as a negative balance. Some programs might put this figure in parentheses or color it in red. It shows inadequate funds at that specific time. As long as this is not the permanent or regular status of the business, managers do not need to be alarmed. Instead, forecast expenses and cash flow to determine whether the business will meet its future financial obligations.

Positive cash flow shows as a positive number. This is the desired cash position of any company. It indicates that the company has more cash than it needs and can invest in long-term assets or return funds to shareholders. However, it may not always tell the full story. Sometimes, that cash in hand comes from taking on debt to finance expenses.

How Does Accounts Receivable Automation Improve Corporate Cash Flow Statements?

The best way to boost your cash flow is to generate more revenue. Some managers immediately turn to the sales department, but sometimes sales is not the issue. Managers also need to focus on collecting cash for the sales already made. Automating accounts receivable processes can speed up this process and improve effectiveness. This, in turn, improves your cash flow statement.

Those that are familiar with the workforce management space need no introduction to Monday.com and its powerful work OS tool. Monday.com recently moved to an automated accounts receivable (A/R) collection system, powered by Gaviti, to replace its outdated annual reporting methodology.

From Monday.com’s accounts receivables department:

With our business and sales growing exponentially, Gaviti has been a key tool in ensuring our DSO has not only stopped increasing but also shown improvements over a relatively short period of time. The ease of use combined with a highly responsive and helpful team… We have been able to quickly implement a comprehensive and versatile collections process.

When you stop to consider the broader, organizational benefits of automated A/R solutions, it’s easy to understand why Monday.com was so successful. The right A/R collection software can improve cash flow as well as the performance of key metrics – such as days sales outstanding (DSO) – within your organization.

Improve DSO Collection Processes

At its core, DSO collection is a cash flow problem. According to a U.S. Bank study, 82% of businesses fail due to poor cash flow management.

Part of this issue is attributable to the time-consuming processes inherent in manual collections. DSO collections and cash flow already vary from month to month. When you add the time spent managing spreadsheets across late payments, grace periods, and lines of credit, you have an untenable system where staff spends more time corralling reports than processing payments. And while you may not enjoy managing the nitty-gritty details of your business’s finances, your financial processes are ripe for optimization. Consider just a few ways that accounts receivable collection software can streamline your enterprise DSO:

  • Collect on accounts when they’re due with automated customer reminders
  • Create a single source of truth with a centralized A/R database that eliminates the need for tracking/compiling across different spreadsheets
  • Faster invoicing through the elimination of unnecessary payment delays
  • Standardize your process for consistent, repeatable collections every time
  • Streamline payment collection for clients, decreasing the odds of entry errors and making it more likely you’ll get paid on time

When you work to improve your accounts receivable collection, you’re working toward a healthy financial process where DSO stays low. But that’s not the only benefit of an A/R collection solution.

Stay Informed

5 Benefits of Automated Accounts Receivable Collection

In any discussion about the benefits of accounts receivable automation, it’s important to cover the broader benefits it provides:

  1. Better staff efficiency by reducing the manual hours required to perform collections tasks – all those hours you spend chasing invoices, calling clients, or writing follow-up emails add up.

  2. Ensure your data’s accuracy – real-time accurate data will prevent your company from making errors.

     

The benefits of the accounts receivable collection software are clear, and once you’ve deployed
automation,
you’ll have a hard time going back.

A/R Collections Best Practices

Although automated accounts receivable software brings a new dimension to your financial processes, the fundamentals of accounts receivable best practices remain the same. It’s a straightforward process that nevertheless tends to get bogged down by inefficiency. This is where automation software pays off.

Consider how you can leverage financial technology like this throughout your organization to improve key financial metrics. Technology is one option. Outsourcing accounts receivable collections to a service provider that can handle all the details for you is another. You have plenty of options, and now it’s just a matter of selecting which improvements will yield the best results for your enterprise.

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