Profit on paper does not pay salaries; cash does. If a large share of your sales is on credit, the money you will have next month depends on when customers actually pay, not on when you invoiced them. This Q&A explains how to turn your accounts receivable into a practical cash forecast.
Why forecast cash from receivables at all?
Receivables are usually the largest and most predictable source of incoming cash. A forecast built on them tells you early whether you can cover payroll, suppliers and taxes, or whether you need to chase harder, delay a purchase or arrange short-term financing while there is still time.
What do you need before you start?
- An up-to-date list of open invoices with amount, invoice date and due date.
- Payment history per customer. At least the last six to twelve months of invoices and the dates they were paid.
- Payment terms. Net 30, net 45, instalments or milestones.
- Known issues. Disputed invoices, customers in difficulty and promises to pay you have already received.
How do you build the forecast, step by step?
1. Age your receivables
Group open invoices by how overdue they are: not yet due, 1 to 30 days late, 31 to 60, and over 60. Ageing shows at a glance how much of your balance is healthy and how much is at risk.
2. Measure how customers really pay
Terms say 30 days, but customers behave differently. For each customer or group, calculate the average number of days between the due date and the payment date. A customer who pays 12 days late on average should be forecast 12 days late, whatever the contract says.
3. Apply a collection rate to each bucket
Not every invoice will be paid in full. Use your own history to estimate the share you eventually collect from each ageing bucket. The older the invoice, the lower the rate.
4. Place the expected cash in weeks
Take each invoice’s due date, add the expected delay, multiply the amount by its collection rate and put the result in that week. Add the weeks together and you have an inflow forecast. Weekly is better than monthly for the next two months, because cash problems hide inside a month.
What does a simple example look like?
Imagine 100,000 of open invoices:
- Not yet due: 60,000 at a 95% collection rate gives 57,000.
- 1 to 30 days late: 25,000 at 80% gives 20,000.
- 31 to 60 days late: 10,000 at 60% gives 6,000.
- Over 60 days late: 5,000 at 25% gives 1,250.
The expected collection is 84,250, not 100,000. If you had planned your spending around the full amount, you would be about 16% short before the month even started.
Is days sales outstanding (DSO) enough?
DSO is a useful health check: open receivables divided by credit sales, multiplied by the number of days in the period. With 100,000 open and 300,000 of credit sales over 90 days, DSO is about 33 days. It tells you the average speed of collection, but it cannot tell you which week the money arrives. Use DSO to spot trends and the invoice-level method above to forecast.
What are the most common mistakes?
- Assuming everyone pays on the due date. Late payment is the norm in many sectors.
- Treating all invoices as 100% collectable. Disputed and very old invoices need a haircut.
- Forgetting new sales. The method above covers invoices already issued. Add expected new invoices separately, with their own timing.
- Forecasting once and never comparing. Check forecast against actual each month and adjust your rates.
- Ignoring concentration. One late payment from your largest customer can matter more than twenty small ones.
How often should you update it?
Weekly is a good rhythm for most small and mid-sized businesses. Update paid invoices, add new ones, revise promises to pay and re-age the list. A spreadsheet works well at first. If you already manage collections in FulcrumGrid Collection, the open-invoice list, ageing and promised payment dates are already in one place, which saves the manual export. To be clear about its limits, it will not predict customer behaviour for you: the delays and collection rates remain your judgement, based on your own history.
Start with ageing, use real payment behaviour, and compare forecast to reality every month. A cash forecast does not need to be perfect, only honest and regularly corrected.
Frequently asked questions
What is the difference between a cash flow forecast and a receivables forecast?
A cash flow forecast covers all money in and out, including payroll, rent and supplier payments. A receivables forecast covers only the incoming side from existing invoices. It is usually the biggest input to the full forecast.
How far ahead should I forecast?
Forecast weekly for the next 8 to 13 weeks, which is where receivables data is most reliable. Beyond that, move to monthly estimates that include expected new sales.
What collection rate should I use for overdue invoices?
Use your own history. Many businesses collect roughly 95% of invoices not yet due and far less from invoices over 60 days late, but the real figures depend on your sector and customers.
Does a faster collection process change the forecast?
Yes. Sending reminders earlier and following up consistently shortens the average delay, which moves cash forward. Update your assumptions once the improvement shows up in the data.
FulcrumGrid Collection
Turn open invoices into a cash forecast
FulcrumGrid Collection keeps invoices, due dates, reminders and promised payments in one place, so your forecast starts from current data.