Knowing how much cash you have on hand from week to week is key to keeping up with payroll and other short term debts. It can help you prioritize bills, understand how intensely you need to work on collecting outstanding invoices and give you an idea of your overall financial security.

A cash flow forecast shows how much cash you’ll have available if you collect on your invoices on time. When you create a cash flow forecast, you need to have accurate information regarding what you expect to collect and when you expect to collect it. Here’s how to do it right.

Setting up your Cash Flow Forecast

Begin by inputting all your open invoices in the weeks they are due. This will give you a good starting point, but you’re not done there. The next step is to go through each invoice and determine the feasibility that the amount will be collected on time. For example, some clients pay their bills every two weeks, whether the bills are due or not. In this case, move all their invoices into the week that they usually pay.

Next, go through and look at your invoices that are past due. You will need to call on each customer to assess whether they even received their invoice and when they might be paid. Put these outstanding invoices in the weeks that they are likely to be paid.

Now, add in all your expenses in the weeks that they need to be paid. If you want to take advantage of early pay discounts, put them in the weeks that would get the discount and highlight them. It’s a clever idea to take advantage of these discounts if you have enough cash on hand to earn them.

The resulting cash flow forecast will show all expected incoming and outgoing funds and let you know if you will have enough cash to pay your bills. If it identifies weeks where you may not be able to pay bills on time, you may decide to move those payments around until every week is in the black.

Take the time to get it right

Many companies use cash flow forecasts without taking the time to make sure they’re realistic. If you’re including old invoices that should have been written off to bad debt, failing to move the invoices to the weeks in which they’ll mostly likely be collected or failing to include all your expenses, the forecast is pointless.

If you don’t have time to look over your cash flow forecast weekly or at least monthly, you need someone who does. R&D Legal Bookkeeping offers general and advanced bookkeeping services to fit businesses of every size. Click here to learn more, or contact us today for a free consultation.