Cash-Flow Scenario Planning: test the decision before the crisis

Use dates, not optimistic labels

The British Business Bank’s forecasting guidance says to record income when the cash is expected in the bank, rather than when a sale is invoiced, and to include all outgoings before calculating a running balance. That discipline matters more in a scenario than the number of tabs in a spreadsheet. A forecast based on invoice terms when customers usually pay later is not a base case; it is an untested hope.

Keep the planning horizon at least as long as the cash cycle and refresh it when better information arrives. For a short weekly forecast, the useful questions are which receipts are genuinely confirmed, which payments are committed, and how low the bank balance gets after each date. Longer views can inform pricing, hiring and capacity decisions, but should not hide next month’s cash low point.

Build three cases with a small number of changes

The base case uses the most evidence-supported timing. The delayed-receipt case moves a small number of important customer payments to a later realistic date. The downside case can combine a delayed receipt with a lower sales assumption, a cost increase or a planned purchase occurring before a receipt. Do not change every assumption at once; the value is seeing which specific event creates the pressure.

For each case, record the assumptions in plain language beside the forecast. For example: ‘Customer A’s £8,000 receipt moves from week 4 to week 7’ or ‘new hire starts two weeks earlier than sales contribution’. A reviewer should be able to identify the cause of the cash change without reverse-engineering formulas.

Turn the low point into a decision trigger

A scenario is useful only if it changes an action. Set a trigger before the cash floor: a date to chase a material invoice, a threshold at which discretionary spend is paused, an owner for updating the forecast, and an escalation route if the business may not meet obligations. This is an operating control, not a finance-product recommendation.

If the downside case indicates that debts cannot be paid when due, address the position early and obtain appropriate professional support. New borrowing should not be treated as the default answer to tax arrears, a loss-making contract or persistent collection failure. Diagnose the root cause and document the choices available.

Stress-test assumptions and timing

A scenario is useful only when it changes a decision. Keep the base case as the best evidence-backed view, then create a downside case that names the assumption that changes: slower receipts, a delayed project, a lost customer, a higher supplier bill or a tax payment arriving as scheduled rather than late.

Show the timing as well as the total. A business can remain profitable in a scenario but still reach a cash floor before the invoice is collected. Record the week of the lowest balance, the action trigger, the person responsible and the evidence that will cause you to switch from monitoring to action.

Do not present a scenario as a forecast certainty. Review the variance against actual bank movements and invoices, retire assumptions that no longer apply and preserve the original version so a later decision can be explained.

What to do, in order

1. 1

   Refresh the base forecast

   Use actual cleared cash, realistic receipt dates, payroll, tax, debt and committed supplier dates.

2. 2

   Choose two or three material uncertainties

   Select assumptions with evidence, such as a major customer date, planned purchase or cost movement.

3. 3

   Run one change at a time

   Create delayed-receipt and downside cases that make the cause of the cash movement clear.

4. 4

   Identify the first dangerous date

   Record the minimum balance and the earliest date an action would be needed.

5. 5

   Assign actions and review weekly

   Set an owner, threshold and escalation path, then update the cases as facts replace assumptions.