forecast-working-capital

name	forecast-working-capital
category	money
description	Forecast receivables, inventory, payables, and related cash timing using operational drivers and reconciled opening balances. Use when planning liquidity, growth, purchasing, collections, or funding needs.

forecast-working-capital

Model when money moves, not only when revenue and expense are recognized.

When to use

• Use for cash planning, seasonal operations, growth funding, covenant review, or collection and purchasing decisions.
• Do not assume contractual payment terms equal actual collection or payment behavior.

Preconditions

• Reconcile opening receivable, inventory, payable, accrual, tax, and cash balances.
• Gather invoice, collection, purchase, inventory, supplier-term, payroll, and tax timing evidence.

Procedure

1. Set weekly or monthly periods, currencies, entities, and the forecast horizon.
2. Forecast receivable creation from sales, then apply segment-specific billing delays, payment terms, disputes, and collection curves.
3. Forecast inventory units, lead times, purchase commitments, receipts, usage, write-offs, and safety stock.
4. Forecast payables from purchases using actual supplier terms, payment behavior, early-payment discounts, and critical constraints.
5. Add payroll, tax, deposits, deferred revenue, prepayments, accruals, and other operating timing differences.
6. Reconcile each period from opening balance through movements to closing balance.
7. Derive working-capital cash movement and the cash-conversion cycle without double counting expenses.
8. Model seasonality, growth, price, currency, disruption, late collections, and tighter supplier terms in combined scenarios.
9. Identify peak funding need, minimum cash date, and operational actions with owners and lead times.

Worked example

A distributor's profit forecast is positive, but holiday inventory must be purchased two months before customers pay. The working-capital model uses SKU purchase timing, customer collection curves, and supplier terms. It shows a six-week funding gap, identifies which purchase orders are cancellable, and separates a delayed collection scenario from an unrealistic assumption that all invoices pay on their due date.

Done

• A working-capital forecast model reconciles opening balances, operational movements, closing balances, cash effects, and peak funding need
• Base and stress scenarios are checked against historical timing, commitments, seasonality, currencies, and documented action lead times