The tool cash and risks curves simulates dynamically the credit risk and manufacturing risk based on monthly costs and payment term applied to invoices.It gives on a monthly basis the actual risks incurred by the seller (loss amount in the event of default by the buyer) and the level of cash.
It is very useful during commercial negotiation phase because it allows to measure the risks to be covered and to simulate the effect of a change in payment terms.
How it works?
The tool is very simple: fill in all the basic information related to the project plus month by month the following data:- Downpayments received.
- Amount invoiced.
- Payment term applied to invoices.
- The cost recognized.
Based on this information the tool provides several curves:
- Credit risk curve.
- Manufacturing risk curve.
- Cash curve.
- Cumulated curves (see below).
The cash and risks curves is an anticipation tool which allows to get a knowledge of the risks of a project and of the funding that it requires.
It is through this knowledge that the seller can guide commercial negotiations towards obtaining better payment terms or risks mitigation means. Before covering a risk, it must be evaluated qualitatively and quantitatively. This is precisely what makes the cash and risks curve.Look at our tutorials about managing projects here.