Cash flow is an important factor in running your business. Not having sufficient money coming in and having too much money going out of a company is a recipe for business failure.

During times of significant economic slowdown, such as we have been experiencing during the Coronavirus pandemic, are often periods when businesses struggle with cash flow.

To manage cash flow effectively, owners need to be able to forecast how their business will perform in future.

A well-prepared forecast can help to:

  1. Predict sales performance
  2. Estimate costs and spending expectations
  3. Indicate when cash will come into and leave a business
  4. Highlight pressure points within a business
  5. Improve credit control
  6. Focus on the most successful services or product lines

Businesses should compile a 30, 60 and 90-day cash flow forecast, as a minimum, but longer forecasts can also be useful, although they tend to become less accurate the further ahead they look.

A sales forecast will include an estimate of how much you expect to sell in the future, which allows you to project income for a period.

If you plan to make additional sales in a particular area, due to a promotion or special event or project, build that into your forecast.

A sales forecast should include any new contracts or retained work that is anticipated during this period.

When estimating your sales do not include any tax on the products or services sold as this will be incorporated into the cash flow forecast later on.

From the sales forecast, you should be able to put together a profit and loss forecast. This combines your business’s income and its costs to give you a projected profit figure for the future, allowing you to:

  • Estimate how much tax the business will be liable for;
  • Understand the costs of launching new products; and
  • Gain an indication of loss-leading products and/or the first indications of negative cash flow.

Be sure to include costs in the month that you incur them, rather than the month that you pay for them.

All cash flow forecasts are prepared based on payment dates, but a profit and loss forecast must be prepared based on when you incur your costs.

You should now estimate and include VAT costs into the forecast. However, large one-off costs, such as a significant capital expenditure, should not be included until the end of the cash flow forecast.

With the advent of the latest cloud accounting technology, it has never been easier to effectively and accurately forecast cash flow. Many solutions are able to collate financial information from various sources to provide you with the business intelligence you need.

For a significant proportion of small businesses their biggest cash flow gripe is likely to be late payments.

That is why the credit control process is an important part of maintaining a healthy cash flow. Although there is various legislation to try and prevent late payments, much of it is neither effective or pragmatic.

For this reason, it is often up to small business owners to improve their credit control on their own, especially during difficult periods where they are trying to balance customer relations with a need to get paid.

The process should establish a realistic timetable, including all the stages that need to be completed by various team members within your business and outline credit terms that should be based on the needs of the business.

Once these elements are in place, a business can then prepare a process for chasing payments, including a schedule for sending reminders, including an initial notice of prompt payment, followed by letters, emails and phone calls.

It doesn’t hurt to make courtesy calls to confirm receipt of paperwork or in advance of the invoice due date. This shows that a business is friendly and professional and allows a customer to give prior warning of late payment.

Businesses should also make sure that they can offer as many payment options as possible. This may include BACS, credit/debit cards, cash and online payments, such as Stripe and PayPal.

Businesses struggling with late payments could also look to incentivise the credit control process by offering early settlement discounts to customers that are known for late payments that kick in when they pay within the agreed credit terms.

While this may seem like rewarding bad behaviour, it may mean that your business is paid sooner. These incentives can also be incorporated into your pricing structure so that profit margins are not affected.

If your business is continually blighted by late payments and you are struggling to deal with the burden of credit control then it may make more sense and be more cost-effective to seek out professional support.

Outsourcing your credit control to an accountant could drastically improve your chances of being paid on time and it should give you an idea of how your cash flow is affected by expected late payments.


At this critical time, it is important that you are able to monitor and manage cash flow within your business.  This can be a time-consuming and laborious task that takes you away from focusing on your business.

For help and advice on managing cash flow within your business, contact our Account Manager, Chris Wilson, on  or at 01236 756161


Posted in Blog.