Cash flow management
Cash flow management in Panama
Companies do not fail because they lose money. They fail because they run out of cash. Those are different things, and a profitable company can be six weeks away from missing payroll without the income statement hinting at it.
DB Consultants Group implements treasury management in companies in Panama: weekly forecasting, collection and payment policy, and control of working capital.
The origin
Why a profitable company runs out of cash
Days pass between selling and collecting. More days pass between buying and paying. And inventory is paid for before it is sold. The gap between those three periods is the cash conversion cycle, and it is the money the company has to fund every month just to operate.
When the business grows, that cycle grows with it. Selling twice as much means funding twice the inventory and twice the receivables before seeing a dollar. That is why growth consumes cash, and why some companies drown precisely when things are going well.
What gets implemented
The four pieces
Thirteen-week forecast
Inflows and outflows week by week over a quarter. It is the tool that anticipates the problem with time to solve it, and it is updated every Monday.
Collection policy
Terms by customer type, credit conditions, monitoring of overdue receivables, and who calls and when. Most delays are resolved by persistence, not by lawyers.
Payment policy
A payment calendar ordered by criticality and negotiation of terms with suppliers. Paying everyone on the same day is an expensive way to manage.
Inventory control
Which SKUs tie up cash without turning. It is usually the largest pocket of cash and the easiest to release.
The process
How it is implemented
- Treasury diagnosisThe current cash conversion cycle is measured: days of inventory, of collection and of payment, and compared against the sector.
- Building the forecastThe thirteen-week model is assembled with the real receivables, the commitments and the seasonality of the business.
- Identifying trapped cashHow much cash is held in idle inventory, overdue receivables and advances, and how much of it can be released.
- Policies and ownersWritten rules for collection, payment and inventory, each with an owner. Without an owner there is no policy.
- Follow-up routineA short weekly meeting with the forecast updated. That is what turns the tool into a habit.
Three to six weeks to have it built and running, with support through the first cycles.
Deliverables
What the client receives
- The thirteen-week forecast model in a spreadsheet, open, ready to be updated every week.
- The cash cycle measurement and the quantification of trapped cash, with the plan to release it.
- Written collection, payment and inventory policies, with owners and thresholds.
- The weekly dashboard, with the indicators worth watching and the ones that are not.
- Support through the first cycles, until the routine holds on its own.
If the underlying problem is the structure of the debt rather than the operation, the route is restructuring the liabilities.
Warnings
What drains cash without anyone noticing
- Growing without funding the growth. Every dollar of new sales demands inventory and receivables before it turns into cash.
- Granting terms in order to sell more. Extending customer credit means financing the customer with the company’s money, and it is almost never charged for.
- Buying volume for the discount. The discount is earned once; the inventory ties up cash every month.
- Watching only the bank balance. Today’s balance says nothing about week nine.
- Confusing profit with cash. You can close the year with record profit and no cash for January’s payroll.
Common questions
Frequently asked questions
Why thirteen weeks and not twelve months?
Because thirteen weeks is the horizon where the forecast is still reliable and there is still time to act. The annual projection is for planning; the weekly one is for not running out of cash.
How long does it take to implement?
Three to six weeks to have it built and running, with support through the first cycles.
Do we need a special system?
No. It is implemented in a spreadsheet, which is what the company can maintain without depending on anyone. If it later wants to move it into a system, the structure is already defined.
Does it help if the company is already behind on payments?
Yes, and that is when it is most urgent. The first thing is to know how much can be paid and when; without that you cannot negotiate with anyone, supplier or bank.
What information is needed?
Receivables and payables with their due dates, bank balances and credit lines, inventory by SKU, and the calendar of fixed commitments.
Can the forecast be reported to a parent company abroad?
Yes. The thirteen-week forecast is delivered in English when the shareholder or the regional treasury needs it, in the format they consolidate, while the local team keeps working in the version they use every Monday.
Who maintains it afterwards?
The company. Part of the engagement is leaving a trained owner and a short weekly routine; if it depends on the adviser, it does not hold.
Is the engagement confidential?
Yes. The nature of every engagement is confidential and is not disclosed without the client’s written authorisation.
Let’s talk about your treasury
A first conversation is enough to measure the cash cycle and see where the cash is trapped. It is confidential and commits you to nothing.