To be aware of any investments or situations of uncertainty that are not always dependent on one’s choices, it is essential that an entrepreneur can accurately analyze the debt level of his company. One of the main indicators to keep in mind is the net financial position (NFP) which makes it possible to check the situation of the accounts of the various banks used on a daily basis, not only in terms of economic availability, but also of credit lines provided.
Net financial position, not to navigate on sight
To calculate the NFP, the difference is made between the total corporate financial payables, regardless of their maturity, and the assets that could be liquidated and used for repayment (cash, current accounts, negotiable securities and financial receivables). In this way it is possible to know the amount of debt for which there is no immediate coverage, an assessment considered important for monitoring the performance and resources available to your company.
When the net financial position is positive, it is certain that the short-term financial receivables and liquid assets exceed the short, medium and long-term financial liabilities and the balance obtained expresses the economic availability of the company itself. Faced with a negative value, it is necessary to take note of a situation of financial debt and therefore of a net exposure towards the lenders, whoever they are. The time factor gives the entrepreneur depth of vision and allows him to evaluate forward-looking investments, while not being caught unprepared by market unforeseen events.
How NFP is calculated
Following its definition, the calculation of the net financial position could theoretically not be complex. Once it is known how much the financial credits, the financial debts and the liquidity of the company are, the other two quantities are subtracted from the financial debts and obtained. For a company with a simple administrative situation, which has relations with only one bank and no type of financing and debt, the manual procedure could still hold up at the level of feasibility, albeit showing longer times than that through software. This second option, however, becomes a necessary choice for all companies that, as they grow, begin to show administrative complexity, due to the number of banks they interface with, but not only.
An entrepreneur in his path of implementing his business may want to take out mortgages or leases, apply for credit lines or benefit from advance invoices: keeping everything under control manually becomes extremely difficult. The risk is to run into delays, when instead it is important to have a PFN updated in a timely manner, but also to make mistakes and inaccuracies.
In this type of situation, a treasury software allows you to monitor everything immediately, eliminating complexities, with obvious benefits and not only for companies that turn to dozens of banks . Even if there were only four, the manual procedure could be complex: if for each you had a mortgage, an import loan, an advance on invoices and a portfolio report, you would arrive at 16 reports to which you add the 4 of the current account to get to 20 situations to be constantly monitored. A treasury software processes all this information promptly, putting in the hands of the entrepreneur reports with the relationships in place for each bank, the credit score granted, the balance in the event of a relationship or the use in the event of a credit, and the availabilities .
How the Net Financial Position Helps the Entrepreneur
What we have just seen to be a non-trivial but necessary calculation, in the hands of an entrepreneur turns into an indicator that has a strong impact on liquidity management and business decisions.
The first valuable information is given by the sign of the net financial positionobtained: if it is positive, it involves an excess of liquidity and financial resources over the debt, if it is negative it is a clear signal that it is impossible to cover the financial debt with one’s own resources. This already allows the entrepreneur to know with punctuality and precision, through data also updated daily, the resources kept in their bank current accounts on which they can rely, also taking into account any overdrafts or advances they have chosen to use. A timely, careful and continuous update on one’s financial situation is a fundamental prerequisite for looking to the future of one’s company, with the awareness of facing any unexpected events and uncertainties, as well as planning any investments.
