Follow a sale through to payment
A business may record revenue before the customer settles the invoice. The reported result and bank balance therefore answer different questions. To understand the cash position, examine when invoices are issued, when they fall due and what collection timing is realistic. Look for changes in the age of unpaid invoices as well as changes in total sales.
Look at the uses of cash
Stock, equipment purchases, loan repayments and other commitments can use cash in ways that do not match the period’s profit figure. A cash forecast needs a clear schedule of receipts and payments. Avoid assuming that every movement can be estimated by applying a percentage to revenue.
Work through a simple illustration
Illustration only: a project invoice for £20,000 remains unpaid while £12,000 of related supplier and staff payments fall due. That timing creates a cash requirement even though the project may contribute positively to reported profit. The actual accounting and cash position depend on the full transaction and reporting context; this example isolates the timing issue.
Turn the issue into a routine
Use a forecast to compare expected and actual cash movements and investigate differences. Review delayed collections, upcoming payments and any assumptions that have changed. Test a downside case rather than treating the base case as certain. Forecast month-end balances can still hide pressure within the month, so the time detail should match the decision.