Muli Cash flow concepts and reporting focus on Souses & Uses of cash in the business not the period movements.
This is intentional so management review their contracting framework to adopt policies that support positive project cash Flow. Few of our clients give cash retentions to their clients focusing on back to back q` bank guarantees and pre-start deposits.
This module provides another major brick in supporting the Project Business, not just for forward planning but also providing an analysis of the past.
The chief element to understand with Cash Flow is – “Not when Work was done but When Paid for”
On creating a Cash Flow, Muli in background, carries out a number of calculations that are based on data contained in Muli. Users need to ensure the Project Timings are realistic, otherwise suffer “GIGO” (Garbage IN Garbage OUT).
A typical Project Report will look as follows:-
Period: Each month-end date for Cash Flow with 3 additional mid-month calculations for the next 3 months. The first date will include ALL transactions prior to the start date.
Received AR: Actual receipts by period.
AR Due: This will have issued claims by the expected due date with ALL claims expected in the next open period.
AR Future: This is the Muli calculation of expected invoice values and is derived by proportioning AP costs on a proportion factor basis. The 3 columns will sum to the expected Contract Value.
Adjusted AR: This column allows the project team to insert (-ve) & (+ve) values to adjust the forecast by period. While generally this column should sum to zero, there is no lock, allowing alternative values to be achieved.
Total AR: The sum of all Accounts Receivable received in the period.
Now for Accounts Payable
AP Paid: The actual value of payments made in the period. Does not include Retention.
AP Not Paid: The value of Accounts Payable transactions entered in Muli based on expected payment date. The date is past the next open payment period.
Now for the Magic:
When you raise an Order, Subcontract or Milestone, there will be a start & end date, along with revised start and end dates.
The Cash Flow takes each element and cash flows the balance between today and activity end date, using straight line distribution and payment terms to apply the value to the expected payment period.
Now, the difference between Expected Contract – (forecast margins + AP Paid + AP Not Paid + AP Future already calculated) = Balance to apportion and it is apportioned on a straight line over the balance of the Contract.
Finally, the value of Retentions outstanding – half are apportioned after Practical Completion and the remainder after End Defects Liability Period.
So, you correctly observe Cash Flow is normally a curve. We agree, BUT a large number of correctly timed activities on a straight line is far more accurate.
Note: Provision has been made for users to revise all project activity dates, which can be done through Muli Project cash flow adjustment of activity dates.
Project Contribution: This column recognises the contribution taken up by yourselves. For future periods, the balance of contribution yet to be recognised will be applied on a proportional basis to the project expense.
Total AP: This is the total expenditure by period that is to be paid out.
Remember: To receive the money this month, you had to claim it last month.
Cumulative: This is the sum of all payables and receivables to date and represents the use or provision of company funds (operating funds).
But there is More
Overhead Projects: Project Contribution
While this is an expense to the individual project, it is not leaving the company but becomes Income to the Overhead Project. Therefore (-ve) is shown as blue in O/H)
Expenses and other income are calculated for the Overheads for current and future years, providing a powerful management review tool.