Best Practices for Cash Flow Forecasting

Tue, 02 Oct 2012

There is one thing you can be sure of every cash flow forecast

 – it is most likely going to need revisions!

Hey, stuff happens. For example, you may experience production delays or weather-related shipping issues. Perhaps your biggest client is delaying payment. Write a list for your own business of the contingencies and likelihood of events that can affect your cash flow. Look back on why prior forecasts were “off" and understand what went wrong. Then, you can learn more about the “why” and make necessary changes to future forecasts.  


Cash Flow Best Practices

  • Look at cash outlays and incomes streams that affect cash-on-hand separately from capital expenditures; include borrowing expense and other investment items - just recap separately. Decide what to spend on and when is appropriate.

  • Review your A/R, A/P and inventory policies and processes for opportunities to improve cash on hand. For example, Can you get receivable payments made sooner by offering discounts?

  • Look at any customer or geographic “economic” issues that can affect your plans. If your clients are in an area that just had floods – they may not be able to pay you in a timely fashion.

  • Look at your forecast in 13 week intervals – keep focused on near term events and how they affect your cash position and cash needs.

  • Have the people who do the forecasting communicate directly with those who affect cash flow – have the forecasters talk to the sales manager or receivable supervisor to uncover underlying circumstances and known issues that will affect your cash position.


Cash is a corporate asset – use it wisely and to do so you need to plan accordingly! 


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7 comment(s).

October 7, 2012 at 6:32 pm
Larry Selnick's recommendations are very helpful in getting us to think about different ways and different steps to take in managing our cash flow. In small operations, we do not have the luxury to "communicate with the people who do the forecasting...", so it is much more hands on. We find it helpful to track cash positions against the prior year since the nature of our business - non-profit - is such that we may know when it may be "OK" to be in the negative. We would also like to see more comments/observations about what the cash management implications might be for organizations that are working to put much more of their payments onto credit cards? Overall, very helpful thoughts.
October 8, 2012 at 6:52 pm
Frank, Great comments on being a small business and the NFP perpective is important. You may not have the staff or other departments to deal with but you have the same issue to know what cash is on hand today and "tomorrow". Let me consider your question on cash flow forecasting and use of cards to maximize cash flow for a future blog. For now, it strike me you can delay a cash outlay by using the terms of the card knowing you can schedule a payment - hopefully with incurring revolving interest expenses. Again, thanks for your post - it helps to know what readers are looking for! Larry
Kim Farrar
July 3, 2013 at 5:15 pm
Larry, What is the significance of forecasting in 13 week intervals? Please provide additional detail? For internal cash forecasting are there any upcoming conferences or other resources that you would recommend?
July 18, 2013 at 3:48 pm
Kim, The 13 week interval is based on a quarterly view. The idea is to keep the data current and have a timeline where you can make changes based on recent experience and information that you have access to such as a vendor wiling to extend terms or a client who needs a few extra days to pay. There is no perfect answer – it is what works for you and your business need. There are many sources for information and education on cash flow forecasting. I would suggest you start with the Association for Financial Professionals (AFP). I am a CTP - Certified Treasury Professional, a professional designation from the AFP. There is a national conference later this year and there are regional chapters throughout the country. I belong to TMANE – Treasury Management of New England who meet throughout the year providing educational services. These are great forums to network and meet other treasury professionals.
July 22, 2013 at 3:46 pm
just want to know if this is a scam.
July 22, 2013 at 3:48 pm
Suspect of your plan.
July 23, 2013 at 12:46 pm
Hi Greg, Can you let us know a specific question for Larry? Rest assured, we do not promote scams here. This blog is designed to give you helpful advice. Thanks, Dawn