How it is used
- Planning payments: deciding which bills to pay this week and which can wait until their due date.
- Cash forecasting: placing each bill in the week it will actually be paid.
- Supplier relationships: spotting overdue bills before a supplier puts the account on hold.
- Month-end close: checking that every bill received has been entered.
Worked example
| Supplier | Not yet due | 1-30 past due | 31-60 past due | Total |
|---|---|---|---|---|
| Materials supplier | $18,000 | $4,000 | $0 | $22,000 |
| Equipment rental | $6,000 | $2,500 | $1,500 | $10,000 |
| Fuel and other | $4,000 | $0 | $0 | $4,000 |
| Total | $28,000 | $6,500 | $1,500 | $36,000 |
$8,000 is past due ($6,500 + $1,500). Paying that this week and the $28,000 on its due dates gives the forecast a clear payment schedule. The $36,000 total should match accounts payable on the balance sheet.
Common mistakes
- Bills that were never entered. An invoice sitting in someone's inbox is still owed. AP is understated until it is in the books.
- Assuming AP is everything owed. Credit cards, payroll, sales tax and loans are usually separate liabilities and need their own lines in a forecast.
- Duplicate bills. The same invoice entered from an email and a paper copy gets paid twice.
- Paying early by habit. Unless there is an early-payment discount, paying on the due date keeps cash in the bank longer.
Related terms
- AR aging (accounts receivable aging): An accounts receivable (AR) aging is a report that lists unpaid customer invoices grouped by how long they have been outstanding, typically current, 1 to 30, 31 to 60, 61 to 90 and over 90 days past due.
- 13-week cash flow forecast: A 13-week cash flow forecast is a week-by-week projection of the cash coming in and going out of a business over the next quarter, starting from today's bank balance.
- Month-end close: The month-end close is the set of steps an accounting team completes after each month ends to make sure the books for that month are complete and accurate, before locking the period.
Further reading
- How to build a 13-week cash flow forecast
- Forecast vs actual: the weekly cash forecast update
- 13-Week Cash Forecast: the nvisin tool built around this