Cash flow forecasting supports health care organizations because it allows them to realize the daily actions and trends associated with different types of revenues.
Cash flow forecasting supports health care organizations because it allows them to realize the daily actions and trends associated with different types of revenues.
Cash management allows the organization to identify where the delays in receiving funds from various streams may be occurring and can identify what is known as “Float.” Float is the difference between the ledger balance (the amount that has been received by the bank) and the collected balance (the amount that is actually available for spending or investment). A high monthly collection float indicates there is a large amount of money in the ledger balance, and actions need to be taken to free up that cash for operations and to improve cash flow forecasting (Bressler, Forsgren, Malmstrom, Vance, Clark and Reese, 2009). According to Deloitte Global Services, operations, investments and financing are the main organizational activities that generate cash inflows and outflows and both play important roles in the management of healthcare organizations. Cash inflows from operations are revenue generated directly from the patients and from insurance reimbursements. Cash outflows arise from payments for wages, taxes, rent and utilities. Medicines, gloves, detergents, disinfectants also generate cash outflows. Ways in which a healthcare organization must control their financial health include monitoring operations/cash flow statements, review income from investments, identifying your financing needs and through long range planning. Organizations must use cash flow statements to determine its ability to support the acquisition of assets like new buildings, or staff and determine if enough revenue will be generated. This all comes into play when trying to maintain the most efficient operation as possible. Efficiency is key in today’s organizations when trying to balance revenues and expenses. The organization must use every monitoring tool they can to control costs and increase revenues for growth.
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References:
Bressler. A., Forsgren. P., Malmstrom. E., Vance. K., Clark. J., Reese. S. (2009). Best Practices in Cash Flow Management/Cash Positioning.
Cole-Ingait.P. (2017). Importance of a Cash Flow Statement in a Healthcare Organization.
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