A customer has accepted a large order, but the supplier needs payment before the customer will pay you. How much extra cash do you need, and on which date?
A short cash-flow forecast can help answer that question before you start looking for funding. It records when money is expected to enter and leave the business, making a timing problem easier to see.
This is a planning exercise, not a recommendation to borrow or a substitute for advice about your business’s obligations.
Put dates beside the money
Choose a forecast period that includes the bills and customer payments causing concern. Start with weekly columns for the next several weeks, adding daily detail around a particularly tight payment date.
Enter the opening cash balance, expected receipts and expected payments. For each period, calculate:
Opening cash + cash received − cash paid = closing cash.
Carry that closing balance into the next period. Label estimates clearly and note the evidence behind them. Australia’s business.gov.au describes this approach to forecasting and calculating closing balances. See its cash-flow statement guide.
Use the date you reasonably expect to receive a customer’s payment, rather than automatically using the invoice date. Include payroll, supplier bills, rent, existing debt payments and other obligations that actually fall within the period.
Look for the lowest point
Consider this invented four-week example, in one consistent currency. It is not a real company’s forecast or a funding recommendation.
- Week one: opening cash 6,000, receipts 2,000 and payments 4,500 leave 3,500.
- Week two: opening cash 3,500, receipts 1,000 and payments 5,000 leave −500.
- Week three: opening cash −500, receipts 7,000 and payments 2,500 leave 4,000.
- Week four: opening cash 4,000, receipts 2,000 and payments 3,000 leave 3,000.
The positive final balance hides the week-two shortage. The negative figure means the scheduled payments cannot all be funded as modeled. It does not mean the bank will automatically permit an overdraft.
Also check the order of transactions within each week. A Friday receipt cannot pay a Tuesday bill unless another source of available cash covers the interval.
Test one late-payment scenario
Duplicate the forecast and move a significant customer receipt to a later date. Keep the bills where they are unless you have a confirmed agreement to change them.
In the example, delaying the 7,000 receipt from week three to week four would take the week-three closing position to −3,000. That shows how a delayed payment changes the gap, even though the four-week total receipts stay the same.
Write the assumption beside the scenario. It is a possibility to plan for, not a prediction.
Review operational options before a commitment
Check whether invoices are accurate and have reached the right contact. Review nonessential spending and ask suppliers whether agreed timing changes are possible. Do not assume that a requested extension has been accepted.
The Australian government’s cash-flow guidance includes faster collection, cost reviews and inventory management among the options to examine. Review its improvement guidance.
If funding remains necessary, add the proposed receipts, fees and repayments to the forecast before deciding. Have a qualified local adviser review obligations you cannot assess confidently, especially if you may be unable to pay debts when due.
Update the forecast with actual figures each week. The useful output is a dated picture of the shortage and the assumptions behind it, ready for a more informed conversation about what to do next.