Cash flow forecast or cash budget is a forecast for income and expenditure for a particular time period. It usually covers the next week or month or quarter.

The cash flow document will list expected cash receipts from sales and other income, and all known and anticipated expenditure due to be made in the period.

It is the business equivalent of a household budget, and is designed to allow management to ensure income will be sufficient to cover expenses, and to seek outside financing if necessary.

Quick Facts: Managing your Cash Flow

• Review the cash flow forecast regularly to ensure there are no missed payments or shortfalls in your account. This will need to be at least weekly, if not daily, if cash is tight. This involves checking that forecast amounts become actual amounts i.e. expected payments are received, and expenditure goes to plan.
• Raise and dispatch invoices promptly, endorse them with a due date and state that interest will be chargeable if they are not paid by the due date. Have a process in place to follow up late payments.
• Know when your customers usually pay and follow up any delays. You need to know if your customer has cash flow problems, because if they go out of business, you will not get paid at all.
• Keep stock levels tight to avoid spending money on unnecessary stock. Operate a “just in time” buying policy.
• Check all spending is necessary or beneficial, and rationalise spending and costs.
• Establish a good relationship with your bank or lenders. You may need to apply for further finance, or extend credit terms, so keep them posted on your progress.
  If cash is tight, boost cash flow by giving clients an incentive or discount to buy now, or to make early payment.
• Look at different funding options, for example can you buy vehicles on hire purchase or lease them. Refinance loans at lower rates, consider invoice discounting.
  Review your payment terms with your suppliers. Can you negotiate more flexible terms, or get a discount?
• Set up alerts, whether it be a text alert from your bank, or an accounts staff member to check the account daily, so if you are near your limit, you are aware in time to take appropriate action.