Cash distribution is important in any financial landscape. It is important to ensure fair and targeted distribution of payments to all parties involved in the project.
Cash distribution is shaped by the financial framework and there are many financial frameworks available actually. One of them is the so-called Waterfall Model or Calculation. It is a financial framework with a structured and transparent approach that performs cash distribution in tiers, which is why it is called Waterfall Calculation.
Is Waterfall Calculation really feasible?
To ascertain or estimate whether this type of calculation is feasible we have to understand how it actually operates. Waterfall Calculations operate only with a strict hierarchical order. That means payments are made in tiers and sequences starting from the top level to the bottom level. Those at level 2 will not receive payment before those at level 1 receive payment.
With such a tiered hierarchy system, payment flows can be easily tracked as each level of payment can be fully monitored. However, its implementation should be preceded by consultation with professionals, such as those working under FTERA Advisors.
How is the model or calculation applied?
We already know what the “core” of the Waterfall Calculation is. But how to apply it?
There are several scenarios of its actual application but it is usually used in project financing. In infrastructure project financing, for example, Waterfall Calculation can allocate payment flows very efficiently. All interested parties, no matter what level they are at, will get their fair share of payments, as well as dividends to company/project shareholders.
Points of advantage of Waterfall Calculation:
– Hierarchy enables transparency and simplicity
If the flow of money has to flow from top to bottom through payout levels, it can be more easily monitored even by people who do not have a strong background in finance.
-Trust that tends to grow
Cash flow transparency will ultimately foster mutual trust between the parties involved in a project. One of the important factors for the longevity of a project or business partnership is the trust between those involved.
– Fairer valuation
Waterfall Calculation makes it easy for any project leader or manager to assess the feasibility or work capabilities of his subordinates because the flow of payments flows linearly from top to telugutitans bottom and it is easy to know the proportion of payments received by people at each level.
– Model flexibility
According to Aleksey Krylov, the author of the model, the Waterfall model offers better flexibility when it comes to incidental specific needs when the project is running. For example, if those at a certain level need more cash flow (unplanned), then the payments at the levels above can be adjusted immediately. The payment flow remains the same, linear, but with changes that are easier to implement.
However, there may be inherent drawbacks to Waterfall Calculation, for example, when on a large-scale project there is a drastic change in one sector, it can disrupt the standardized linear flow of payments, and even minor adaptations are no longer possible.
