We describe forecasting structures, tolerance bands, and governance that improve cash visibility. The article outlines AR credit controls, AP strategies and inventory turn targets, plus bank facility management and covenant checks. It closes with variance analysis habits, scenario planning, and "quick start" steps to embed daily discipline.
1. Forecasting structure and cadence
Effective cash flow forecasting requires structured approaches covering daily, weekly, and monthly horizons with appropriate detail levels for each timeframe. Daily forecasts focus on immediate liquidity needs, whilst weekly and monthly projections support strategic planning and covenant monitoring.
Establish regular forecasting cadences with clear ownership, update procedures, and variance analysis protocols that enable proactive cash management and early warning capabilities.
2. AR credit policy and collections
Accounts receivable management significantly impacts cash flow predictability through credit policy design, collection procedures, and customer relationship management. Establish clear credit limits, payment terms, and escalation procedures that balance commercial objectives with cash flow requirements.
Implement systematic collection procedures with regular customer contact, payment reminders, and dispute resolution processes that minimise collection periods whilst maintaining commercial relationships.
3. AP strategy and supplier terms
Accounts payable optimisation balances supplier relationship management with cash flow enhancement through strategic payment timing, early payment discounts, and supplier financing arrangements. Negotiate payment terms that align with cash generation cycles whilst maintaining supplier goodwill.
Develop supplier payment strategies that optimise cash utilisation, taking advantage of early payment discounts where economically beneficial whilst avoiding late payment penalties or relationship damage.
4. Inventory turns and obsolescence
Inventory management directly affects working capital requirements through purchasing policies, demand forecasting, and obsolescence management. Establish target inventory turn ratios appropriate for business cycles and customer service requirements.
Implement regular inventory reviews covering slow‑moving stock identification, obsolescence provisioning, and disposal procedures that optimise cash conversion whilst maintaining operational efficiency.
5. Facilities, covenants and headroom
Banking facility management requires ongoing monitoring of covenant compliance, headroom calculations, and renewal planning to ensure adequate liquidity support. Establish regular reporting procedures that track covenant metrics and provide early warning of potential breaches.
Maintain comprehensive facility documentation and renewal planning that anticipates business growth, seasonal variations, and potential stress scenarios requiring additional liquidity support.
6. Variance analysis and actions
Regular variance analysis between forecast and actual cash flows enables continuous improvement in forecasting accuracy and early identification of operational issues affecting liquidity. Establish variance investigation procedures with clear thresholds and corrective action protocols.
Develop action plans for significant variances covering immediate corrective measures, process improvements, and forecasting model refinements that enhance future accuracy and control effectiveness.
7. Tools: sheets vs systems
Cash flow forecasting tools range from simple spreadsheet models to sophisticated system‑integrated solutions, with selection depending on business complexity, accuracy requirements, and resource availability. Evaluate tool capabilities against forecasting needs and implementation costs.
Consider hybrid approaches combining spreadsheet flexibility with system data integration that provide enhanced accuracy whilst maintaining user control and customisation capabilities.
8. Roadmap and KPIs
Implementation roadmaps should prioritise quick wins such as daily cash position reporting, basic forecasting models, and key performance indicator establishment before progressing to more sophisticated tools and processes.
Establish meaningful KPIs covering forecast accuracy, collection periods, payment terms utilisation, and covenant headroom that provide ongoing visibility and enable continuous improvement in cash management effectiveness.
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Our Accounting & Financial Reporting team supports cash flow forecasting and working capital optimisation initiatives. Our Audit & Assurance team provides independent assessment of cash management controls and procedures.
Last updated: 13 Oct 2025