Corporate Liquidity: Reading a Rolling Cash Forecast

Define the cash that can actually be used

Liquidity planning starts with the amount available to meet obligations and the dates on which those obligations arise. ACCA's working capital guidance explains why a profitable business can still struggle to pay: cash may remain tied up in inventory or customer balances while supplier and operating payments become due.

Begin a management forecast with reconciled bank balances, a preparation date and a clear scope. Identify restricted balances, transfers between accounts and cash held in another entity that is not immediately available to the paying business. Show available facilities separately and verify their terms before treating them as a source of cash. An expected financing application belongs in a separate assumption until its availability is established.

Build a forecast around payment dates

The Association of Corporate Treasurers describes short-term operational forecasts commonly covering a rolling 13 weeks. Its receipts-and-disbursements approach uses separate schedules for incoming and outgoing cash, supported by regular comparison with actual movements. Select a horizon that covers the company's collection and payment cycle; use daily detail where a weekly closing balance could hide an earlier shortfall.

For an illustrative model, give material receipts an expected collection date, evidence and owner. Use customer payment behaviour and invoice disputes alongside contractual terms. Obtain commitments from purchasing and operations, including orders that have not yet reached the payables ledger. Keep payroll, rent, debt service and significant one-off payments visible. Exclude non-cash charges from the payment schedule and check that inter-account transfers are not counted as new receipts.

Worked example: a delay creates a buffer shortfall

All amounts below are fictional currency units and illustrate a management method; they do not represent Clearpath or a client. Assume usable opening cash of 240,000 and an internally chosen minimum buffer of 80,000. That buffer is a planning assumption, not a universal requirement. The model excludes new borrowing and assumes all listed payments occur within their assigned week.

• Week 1: 240,000 opening cash plus 150,000 receipts less 280,000 payments gives 110,000 closing cash.
• Week 2: 110,000 plus 170,000 receipts less 210,000 payments gives 70,000, which is 10,000 below the selected buffer.
• Week 3: 70,000 plus 220,000 receipts less 190,000 payments gives 100,000.
• If 60,000 of week-one receipts moves to week three, closing balances become 50,000, 10,000 and 100,000. The largest buffer gap is now 70,000 in week two.

Evaluate an action without hiding the remaining gap

Suppose management can move an uncommitted 35,000 equipment purchase from week two to week four without a penalty or operating disruption. In the delayed-receipt case, week-two cash rises from 10,000 to 45,000. It still falls 35,000 below the chosen buffer. The purchase also reappears in week four; the action changes timing rather than removing the payment.

The decision note should therefore show the original forecast, the delayed-receipt case and the approved action separately. Confirm the late customer's payment status and assess further options before assuming improvement. Record the deadline by which another decision is needed, taking account of payment cut-off times. A balance above zero may still leave insufficient room for an unplanned payment or a further collection delay.

Translate working capital days into a testable assumption

ACCA expresses the operating cash cycle as inventory days plus receivables days less payables days. A fictional distributor with 45 inventory days, 40 receivables days and 30 payables days has a 55-day cycle. This identifies where cash is committed through trading; it does not specify the lowest bank balance on a particular date.

If monthly credit sales are a steady 300,000 over a 30-day month, reducing average collection time by five days suggests a 50,000 reduction in receivables: 300,000 divided by 30, multiplied by five. This simplified estimate assumes unchanged sales, consistent measurement and actual collection. Growth, seasonality, disputes or write-offs can invalidate the estimate. Do not count the same collection improvement again in the invoice-level forecast.

Produce an actionable weekly liquidity pack

Retain the previous forecast, replace completed periods with actual cash movements and extend the horizon. Classify material errors as timing, amount, omission or changed assumption. Give management the lowest balance and date, headroom against its selected buffer, significant uncertain receipts, and an action register with owners and completion dates. Explain which actions are approved and which remain options. Review recurring errors with the contributor responsible so that the next forecast improves its underlying assumptions.