Cash flow is a design problem, not a discipline problem
A cash-flow discussion can look beyond invoice chasing to the timing built into the commercial model.
When cash gets tight, the instinct is to blame behaviour: invoices sent late, customers paying slowly, spending not controlled. Sometimes that is true. More often, the business is doing everything right and the cash gap is built into the model itself.
Where the gap comes from
One useful starting point is the timing between paying for inputs and receiving payment for the completed work. Those dates depend on supplier terms, delivery time, invoicing and customer payment. Map the actual dates before drawing a conclusion about the gap.
Growth does not create cash. It consumes it. The faster you grow, the more of it you need.
Four design levers
- Deposits and staged payments. Consider whether the payment structure matches the timing of the work and the terms agreed with the customer.
- Invoice on milestone, not on completion. If the work takes six weeks, there is no reason the first invoice waits six weeks.
- Terms that match your suppliers'. If you pay in 30 days and are paid in 60, the mismatch is structural. Negotiate one side or the other.
- Pricing that reflects the cost of credit. Offering 60-day terms is a financing product. Price it as one.
What a forecast is for
A 13-week cash-flow forecast is not a reporting document. It is a decision tool that shows you, in advance, the week the gap opens so you can act before it does. If your forecast is produced monthly and reviewed quarterly, it is a report. If it is updated weekly and read by the person who decides what gets paid, it is a forecast.
Questions to bring to a forecasting discussion
Purpose
Which business decision is the forecast intended to inform?
Inputs
Where do the existing figures and timing assumptions come from?
Uncertainty
Which dates or amounts are estimates rather than confirmed information?
Ownership
Who keeps the information current and explains changes to the people using it?