Accounting technology / Glossary / Cash flow forecasting

What is cash flow forecasting?

Definition

Cash flow forecasting is projecting a company's future cash receipts and payments to see how much cash it will have, and when. Short-term forecasts, usually 13 weeks, are built from expected customer payments, supplier payments, payroll and tax; longer forecasts are derived from the budget's profit and balance sheet. Both show when funding is needed.

Also calledcash forecasting13-week cash flow forecast

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Short-term horizon: Usually 13 weeks, by week
Methods: Direct and indirect
Category: FP&A and forecasting

How cash flow forecasting works

The direct method lists receipts and payments by week: collections from open receivables and expected sales, supplier payment runs, payroll dates, rent, tax and debt service. It suits the short term, where timing matters, and is the basis of the 13-week cash flow forecast that lenders and boards ask for when cash is tight. The indirect method starts from forecast profit and adjusts for non-cash items and changes in working capital; it suits monthly and annual forecasts tied to the budget. Each week the forecast is compared with actual bank balances and the variances explained, which improves the next one. Treasury tools such as Panax, Embat and Round Treasury pull bank data across entities; Centime links forecasts to AP and AR; FP&A platforms such as Pigment and Abacum carry the longer horizon.

Common questions

What is a 13-week cash flow forecast?+

A week-by-week forecast of receipts, payments and the closing cash balance for the next quarter, rolled forward every week. It is the standard short-term liquidity tool and is often required by lenders when a company is under pressure.

What is the difference between the direct and indirect methods?+

The direct method forecasts actual receipts and payments line by line. The indirect method starts from forecast profit and adjusts for depreciation, working capital and other non-cash items. Most companies use direct for weeks and indirect for months and years.

How accurate should a cash flow forecast be?+

Accurate enough to make decisions on, and measured so it improves. Teams track the difference between forecast and actual cash each week and investigate the largest lines, usually customer receipts.