Developing a Cash Management Strategy

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Developing a Cash Management Strategy
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Why A Cash Management Strategy?

• Severe cash difficulties in the trust
• PSPP 7 (by volume)
• Potential cash deficit of 31M
• Cash/deficit health economy wide
• Need to give certainty to all partners of the
  trust such as
• SHA/PCT
• Suppliers
• Needs to link in with IE strategy and
  developments such as PRB
• Reduction in flexibilities of NHS regime
• Cash no longer an in-year fix
• FMWP (04-05)
• Public Interest Report so pretty much
  compulsory
• All NHS organisations now need to do one
  personal view
• Risk assessment around inflows and outflows

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Reduction in Cash Flexibilities the Trend
Example based on PCT financial regime
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Developing a Cash Management Strategy Some of
the Factors
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Developing a Cash Management Strategy

• Develop a robust plan for Year 1 as the starting
  point
• Cash flow planning driven by IE plan
• Review of internal and external commitments
• Good Housekeeping
• Review of Processes
• Review of Risks and developments
• Reporting, monitoring and revising
• Projecting forwards
• Separating out capital and revenue cash

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Developing a Cash management Strategy

• Cash flow and IE Planning
• Foundation cash flow forecast will be based on
  the IE plan
• Forecast NHS and Other Income
• Forecast NHS and Non NHS Expenditure
• Provisional profiling e.g. Block contracts
  profiled in twelfths
• If IE under pressure then so is cash
• Capital Programme and Timing

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Developing a Cash management Strategy

• Review of External and Internal Commitments
• Repayment of Brokerage SHA/Bank
• In year
• Future years
• Repayment of PDC
• EFL/CRL targets
• Agreement with Suppliers
• Re-negotiate payment terms/plans
• Temporary borrowing to meet short term
  commitments
• Ability of NHS organisations with health economy
  to pay
• What are untouchables if any?
• Cash releasing savings from LDP
• SHAs own cash management strategy

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Developing a Cash management Strategy

• Good Housekeeping
• Minimising debtor balances and debtor days
• Benchmark performance against other trusts
• Rigorous credit control
• Review stock levels
• Are all income streams identified
• Are all recharge accounts being cleared
• Are invoice procedures robust
• PAS system indicating loss of income
• FMWP (04/05) being followed
• Is PSPP low because of cash or processes?
• Ensure financial accounting is robust
• Better use of charitable funds?

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Developing a Cash management Strategy

• Review of Processes
• Longer term
• Procuring/Ordering procedures
• Best value and payment terms
• Stock management
• Invoicing and credit control procedures
• Ledger system/shared services
• VAT review

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Developing a Cash Management Strategy

• Risk Assessment
• Quality of reporting and monitoring
• Monthly balance sheet to Board
• Debtor/Creditor balances
• Performance against EFL
• Temporary Borrowing
• Identification of risks
• Risks associated with income
• 6M from PBR but is it real?
• Is new expenditure supported by income streams?

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Developing a Cash management Strategy

• Revisit 05/06 after testing assumptions
• In year requirements
• Potential for internally generated funds
• External funding
• NHS Bank
• SHA
• Suppliers/NHS Partners
• Revisit plan and review assumptions
• Monitor cash flow forecast
• Produce outline plans for year 1 and 2 in line
  with IE recovery plans and 05/06 forecast
• Implications of PBR

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Developing a Cash management Strategy

• Other Considerations
• An iterative process
• Dialogue with partners essential
• Cash not entirely within control of Trust
• Identify and report problems at an early stage
• Avoid optimism! Try for a balanced view
• Strategy to be written up setting out assumptions
  and a 3 year forecast
• Measure and benchmark performance continuously
• Ensure staff have skills to perform effectively
• Sell assets?

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Outline Cash Management Strategy Document

• Review of current position
• Cash plans and balance sheet models for 05/06 and
  forecast 06/07, 07/08
• Set out assumptions, risks and methodology
• Set out process of review and reporting
• Identify key targets and objectives e.g.
• PSPP
• Debtor days
• Update strategy on a regular basis as information
  and assumptions change

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My role

• Pulling it together!
• Liaison with management accounting
• Reviewing current assumptions and issues
• Communication with internal consultants/auditors
• Presenting initial forecast to DoF/Deputy and
  iterations
• Liaising with SHA/PCTs on income
  streams/brokerage
• Liaising with suppliers and supplies department
• Setting up robust monitoring/reporting
  arrangements
• Consulting and implementing changes to processes
• Setting up training of finance staff where
  necessary
• Raising awareness of budget managers of cash
  issues
• Setting up communication chains for managers and
  suppliers
• E.g. helpdesk type role?

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FMWP (04/05) Cash Management in the NHS

• Key points for NHS Trusts
• DH will review trust flexibilities considers
  them too lax
• Advances to trusts only allowed in April
• Monthly cash monitoring by SHAs via FIMS
  explanation for variances over forecasts of 5
• SLAs over 250K to be billed monthly
• SLAs under 250K quarterly billing to be paid
  mid-quarter
• Disputes over 50K referred to SHA after 3 months
• Lower value disputes to DoF after 4 months
• Billing after 3 months will render income
  un-collectable