Overview
In common parlance, the term financial reporting has specific importance for businesses and is a crucial obligation that must be fulfilled by business owners within a due period. Furthermore, financial statements and reports are prepared and published by the business entity for the sake of internal as well as external stakeholders like as shareholders, partners, potential investors, lenders, creditors, government and regulatory authorities, etc. who keenly consider, analyze and rely on these reports to ensure the business is financially sound with minimum risk and growing. This in turn builds goodwill and supports investment decisions by the various stakeholders.
Under various legal statutes in India, businesses are obligated to disclose their financial performance to the stakeholders of the company. Read further to find out more about the financial follow-up report (FFR), its purposes, types, and more.
Financial Follow-Up Report (FFR) -Meaning and Purpose
Meaning
A financial follow-up report (FFR) could be understood as a financial document that could be referred to comprehend various aspects regarding the financial health of a business entity in terms of its financial performance, expenditures, or budget utilization within an organization or project. Typically, a financial follow-up report (FFR) is to be filed by a borrower business entity to its lender specifying their business performance periodically. Failing to do so, the borrower will not just lose trust and credibility but also attract penalties thereof.
Purpose
Such reports are prepared as a standard practice carried on by the companies where they represent accurate information about the finances of the company. In other words, it is a formal record where the company gives a detailed insight into its financial information, like its expenses and profits, capital structure, cash inflows, revenues, etc. offering an understanding of the overall financial health of a business. Apart from this financial follow-up report (FFR) report serves the purpose of –
- Offering crucial information regarding the business of the company to the stakeholders allowing them to make informed decisions.
- Facilitates comparison of the annual budget to its actual performance with the help of factors such as current assets and liabilities, and estimated figures for the end of the year.
- Offers financial analysis to assess business performance against their budget estimates or financial goals. Statements of assets and liabilities, cash flow forecasts, variance analysis, suggestions for financial management or remedial measures, etc. are included in it.
- Recapitulates the business performance in the past years with factors such as
- Changes in working capital differences;
- Net surplus/Deficit;
- Any changes in the business borrowings;
- Production qualities and Net sales;
- Working capital levels and financing;
- Inventory level and capacity
- Business Payables and Receivables
- Operating statements and Fund flow statements for the past year;
- Estimates for the current half-year
FFR Explained
Importance of Financial Follow-up Report (FFR)
A financial follow-up report (FFR) is of crucial importance due to the following reasons-
Helps decision-making for the stakeholders
The external stakeholders of a business such as creditors, vendors, suppliers, potential business investors, etc. wish to get a better understanding of the business’s financial health as it affects their decisions about the company. Based on the performance of the company, the lenders will decide whether to lend money to the company, and investors will decide if it is valuable to invest in the company. Thus, complete disclosure of financial statements is important as it affects all the stakeholders in different ways.
Preparation and submission of tax reports
Business entities prepare financial reports and tax returns and submit them to the regulatory authority as mandated by law to ensure the business taxes are assessed and submitted on time and sometimes conduct audits to analyze the financial reports rendered by businesses.
Making crucial management decisions
Raw financial figures may not always be adequate for businesses to reach management teams to reach core business decisions, but preparing financial reports could act as a groundwork for preparing other documents for business. Therefore, financial reports prepared with accuracy and precision could serve the management to make significant business decisions in multiple ways.
Raising business capital
Financial reporting allows stakeholders and investors to assess their sound financial position, which further helps the business to raise funds from the general public.
Legal Compliance
Businesses also need to focus on timely preparation of financial reports and submitting them on time since it placates compliance requirements and laws. Such reporting requirements may be more or less stringent depending on the type of business entity, level of operations, number of stakeholders involved, etc. For instance, a private company might have borrowings requiring it to prepare financial reports and submit them periodically to the lender.
Benefits of Financial Reporting
Financial follow-up reports (FFR) have several benefits to offer beyond the fulfillment of legal compliances and reaching crucial business decisions. Some key benefits of financial reporting are-
- Trend Identification: Financial follow-up reports (FFR) allow the business entity to do a core analysis of the financial health of an entity and identify key business trends, helping it to seize evolving opportunities and mitigate risks from any possible challenges.
- Cash-flow management: Financial follow-up reports (FFR) help businesses track their cash inflows and outflows, which could be of critical value for businesses regardless of their business size and level of operations.
- Streamlining business operations: It is not possible to manage business operations without the ability to measure their efficacy and productivity. However, businesses could improve the same through internal financial reporting, which includes key performance indicator reports and other regular reports.
- Preparing Budgets and Forecasts- Financial reporting acts as a strong foundation for creating analysis used for future references to create budgets, prepare forecasts, and pro forma scenarios.
- Effective working capital management — Real-time financial follow-up reports (FFR) are beneficial for businesses to figure out adequate current assets required to meet current liabilities during a specific period with the help of real-time data. In a similar vein, financial follow-up reports (FFR) are helpful in the effective management of other aspects, including debt management, such as revolving lines of credit or short-term credit facilities.
- Forming better business relationships—Business relationships could be enhanced and nurtured with their business partners, vendors, suppliers, investors, customers, etc., through business efficiency and credibility. Accurate and timely financial reporting could indicate timely payments to vendors, competitive pricing for customers, build creditworthiness, and establish sound connections with investors.
Format of Financial Follow-Up Report (FFR)
Filing of both FFR 1 and FFR 2 by the borrowing company may be required in some cases. The major difference between these two reports is that FFR 1 provides information on capital status, profit and loss, sales working capital, etc. whereas FFR 2 includes details of funds flow. Given below is the sample link to the format for FFR 1 and FFR 2.
Due Date of Financial Follow-up Report FFR -1 and FFR-2
The company must submit their FFR reports as required by the compliance and banking authorities, within the specified timeline. A sample timeline has been provided below for a better understanding.
| Form | Quarter | Due Date |
| FFR-1 and FFR-2 | Jan to March | June 30 |
| FFR-1 and FFR-2 | April to June | September 30 |
| FFR-1 and FFR-2 | July to September: | December 21 |
| FFR-2 and FFR-2 | October to December | March 31 |
- FFR-1 and FFR-2 follow-up reports are to be submitted to the banks frequently.
- It is necessary to note that the submission for a financial follow-up report (FFR) shall be made either on or before its date of submission. If the concerned business entity wishes to seek an extension for the submission the same shall be requested in advance.
- Businesses need to report financial information for every line of business/unit individually as well as as a whole.
- Valuation of the current assets or current liabilities and reporting of incomes and expenses should be on the same basis as provided under statutory balance sheets and should be utilized consistently.
- For fund flow, current assets and current liabilities shall be assessed as the same in the valuation of working capital limits and relevant financial follow-up report (FFR)-I.
Types of Financial Follow-Up Report FFR-1 and FFR-2.
Businesses need to financially follow up reports in the formats FFR-1 and FFR-2 to banks to submit reports on their performance. The formats for financial follow-up reports (FFR) include
FFR-1
The financial follow-up report (FFR)-1 offers information regarding the financial performance of the business in the past year as well as the budget estimation for the current year. FFR-1 is the extract of the balance sheet statement allowing the business to submit sales details, current assets, and liabilities for the quarterly period. These details include
- Details of production capacities and sales during the period;
- Working capital
- Inventory level
- Trade Payables and Receivables
FFR-2
This type of financial follow-up report (FFR) includes a statement of operation and fund flow statement for the past six months and the existing half year. Under the financial follow-up report (FFR), the business needs to submit a profit and loss statement, a balance statement, and a cash flow statement. It includes
- Source and usage of funds;
- Working capital changes for the specified period.
Things to Keep in Mind While Preparing Financial Follow-Up Report (FFR)
Since financial follow-up reports (FFRs) outline the financial well-being of a company or a project; it is important to prepare the same meticulously. Some of the tips to be considered while preparing a Financial follow-up report (FFR) are-
- Outline Key Metrics- Clarity is of utmost importance while preparing a financial follow-up report (FFR). As a result, ensure that the audience comprehends the importance of the critical metrics by defining and explaining them.
- Highlight Trends-In order to assist the audience in assessing financial performance and making sound decisions, emphasize trends and patterns in crucial metrics over time.
- Comparing Data- Use visual tools to analyze financial data against the industry standards for better insights. Graphs and charts always work better than data-heavy texts.
- Color and Design- In order to improve the overall attractiveness and readability, use specific colors or design strategically, which could help to enhance key data aspects and trends. Highlighting important aspects using a color scheme will quickly draw the attention of the observer or compliance authority.
- Verify Data-Make sure that the financial data is accurate and precise through the removal of errors through stringent review procedures. If necessary, you may attach certain data and charts as annexures for handy reviews.
- Data Reconciliation—Financial data derived from multiple sources should be reconciled in order to ensure the accuracy and consistency of reported figures.
- Historical context- In order to facilitate deeper analysis of financial data, offer historical context that highlights patterns and changes over time.
- Incorporate Stakeholder Feedback-Seek feedback from the stakeholders to improve the reader’s understanding, applicability, and conformity to their informational requirements.
- Undertake periodic compliance checks- Conduct financial performance audits and fulfill timely periodical compliance with financial regulations while identifying any nonconformities and addressing risk concerns.
- Disclosures and Transparency- Maintain transparency by complying with regulatory requirements and stating the same in the financial follow-up report (FFR), which will build trust and confidence among the stakeholders and the company. Giving overall credibility and ratings for the company.
- Seeking expert consultation – To effectively comprehend and fulfill regulatory obligations within financial regulatory processes, seek guidance from legal and financial authorities.
- Stay informed about changes – Stay abreast of all the changes regarding all relevant financial regulations to ensure adherence to changes in regulatory changes established by regulatory authorities.
Conclusion
Therefore, apart from just fulfilling the requirement to notify the lender regarding the financial position of a business, a financial follow-up report (FFR) helps a business to enhance business’s credibility, help stakeholders get a sense of its financial soundness, manage business cash flows, prepare budget analysis, and help external stakeholders like regulatory agencies, current and potential shareholders, and investors use financial follow-up reports (FFR) to make inferences regarding the current and future financial health of the business. Though each business entity might have different reporting requirements, financial follow-up reports (FFR) are an effective manner of communication for external as well as internal business stakeholders. Reach us at BankKeeping for other types of report preparations for banks or to outsource critical aspects of banking