Cashflow forecasts

A cashflow forecast is an essential management tool. You need to know what monies are owed to you at any one time and when payment is likely to be received. You then need to know what bills you have to pay and when – and reconcile the two to make sure you have enough cash to meet your outgoings.

“What we often find is that businesses come in asking to extend their overdraft facility because they are not being paid on time or they have suffered a bad debt. Often they leave this until the last minute – when they need the money rather than arranging an adequate facility well in advance. The reason why they are in this situation is usually because they don’t have an adequate cashflow forecast – or any at all. If you cannot prepare one of these yourself, ask your business advisor.”
Mike Ford, Senior Business Manager, North Staffordshire Business Centre.

Calculate the worst case scenario in terms of cashflow – and that is the facility you should be trying to arrange.

Also look at ways of reducing your need to borrow such as:

• Reviewing who you are extending credit to – and how much credit you are extending to each customer
• Reviewing how long you are allowing your customers to pay you – and seeing if this can be shortened
• Negotiating longer payment terms yourself – so you have longer to pay


Financing cashflow: the options

• Overdrafts: Ideal for day-to-day cashflow needs – but you may need to consider other options if you are near your limit, cannot arrange a larger facility, or want to reduce the monthly cost or free up your facility for working capital.

• Loans: These spread the cost of borrowing over a longer period – consider putting the element of your overdraft that is “solid debt” into a loan to free up your working capital.

• Invoice discounting: This will release cashflow more quickly. Invoice Finance can give you up to 90% of the invoice value when it’s issued, and the rest (less fees) when it is paid. It can provide bad debt protection too as the invoice discounter can assess your customers and set credit limits for each of them. If a customer becomes formally insolvent, you will be paid 100% of what is owed provided you trade within these limits.

• Asset financing/leasing: This can release cashflow tied up in depreciating assets such as company cars, computers and machinery and equipment. The finance is secured on the asset itself, freeing up your other security (often your property) to secure and raise other forms of finance. Installation, maintenance, servicing and insurance can all be included, making your life easier.

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[Extract from Trading Through The Economic Downturn - published by NatWest - full Guide available by clicking here]

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