DGMT NGO Commons - A Resource for Enhancing Good Governance and Accountability

A Resource for Enhancing Good Governance and Accountability

Cash flow, Liabilities and Commitments

A lack of cash flow can cause short term financial difficulties for organisations, especially when salaries need to be paid, and when not all of the organisations costs are covered by ‘restricted project’ funds (i.e. funds awarded to an organisation to be spent on specific program or organisational costs).  Such difficulties are often compounded, when other liabilities and commitments – which may be in the form of overdrafts, loans, the need to service debts, mortgages – also need to be met.

For all organisations, it is critically important that financial management systems allow for accurate forecasting of the organisation’s cash flow situation through efficient monitoring of the organisation’s monthly operating expenses.

It is good practice to try to ensure that committed/regular payments are matched to committed/regular income on a month by month basis.

Working with cash

It is often the case that community-based organisations operate in an environment where they are required to work with cash.  Some oganisations might be able to collect money from membership fees or they receive donations from members in the community.  It is important to recognise that working with cash-based transactions, come with costs (such as bank charges, which the organisation will have to carry) and very often, with some very real risks. Cash is vulnerable to theft, there is often a temptation to use available cash to pay for emergency expenses.  It is extremely important, therefore, to ensure that you establish an efficient record-keeping system that will allow you to account for all cash income and expenditure. It is also good practice to ensure that these records are kept up to date and regularly available to be checked by an independent person.