How to Forecast Cash Flow: A Practical Guide & Example for B2B Businesses 

Running out of cash is a primary reason businesses fail. A regular supply is vital to pay salaries, suppliers, and bills, and to invest in growth. Even high-sales companies can become insolvent if cash flow is disrupted – often due to unpaid invoices, a common B2B challenge. 

This is why tracking and forecasting your cash flow is essential. It allows you to: 

• Spot Trends: Understand the patterns of your cash inflows and outflows. 
• Anticipate Needs: Know in advance when your business might require additional cash. 
• Prevent Problems: Take proactive measures to avoid a cash flow crunch. 
• Time Investments: Identify the best moments to invest in new equipment, technology, or expansion. 
• Manage Risk: Understand the potential impact of late payments or bad debts from your Accounts Receivable (A/R). 

A comprehensive forecast provides a clear view of your future financial position. It typically includes: 

1. Opening Balance: The amount of cash you have at the start of the forecast period. 

2. Cash Inflows (Receipts): All expected cash coming in, often broken down by:  

• Sales Receipts: Payments from customers (the most critical, and often variable, element in B2B). 
• A/R Collections: Cash received from previous periods' sales. 
• Other Income: Loans, investments, asset sales, tax rebates. 

3. Cash Outflows (Payments): All expected cash going out, such as:  

• Operating Costs: Salaries, rent, utilities. 
• Accounts Payable (A/P): Payments to suppliers. 
• Capital Expenditures (CapEx): Investments in long-term assets. 
• Taxes & Interest: Payments to government and lenders. 

4. Net Cash Flow: The difference between total inflows and total outflows for a period.  

• Formula: Total Cash Inflows – Total Cash Outflows = Net Cash Flow 
• A positive number means cash increased; a negative number signals a decrease and requires attention. 

5. Closing Balance: The cash position at the end of the forecast period.  

• Formula: Opening Balance + Net Cash Flow = Closing Balance 

Depending on your needs, you can create forecasts with different timeframes: 

• Short-Term Forecast (Daily/Weekly): Covers a few days to a few weeks (e.g., 1-4 weeks). Used for managing day-to-day liquidity and ensuring immediate bills can be paid. Crucial for managing A/R timing. 
• Medium-Term Forecast (e.g., 13-Week Rolling): Provides a view of the upcoming quarter. Highly useful for tactical planning, managing working capital, assessing seasonal needs, and is a standard for many B2B businesses. 
• Long-Term Forecast (Annual+): Covers a year or more. Used for budgeting, strategic planning, and evaluating major investments. While less precise, it sets the strategic direction. 

Here’s a practical approach to building your forecast: 

Step 1: Define Your Objective & Timescale What do you need the forecast for (e.g., manage liquidity, plan CapEx)? Choose the appropriate forecast type (Short, Medium, or Long-Term). 

Step 2: Choose Your Method (Briefly) 

• Direct Method: Forecasts actual cash receipts and payments. More accurate for short-term. 
• Indirect Method: Starts with net income and adjusts for non-cash items. Often used for long-term planning aligned with financial statements. 
• Many B2B firms use a Direct Method or a hybrid for their operational (Short/Medium-Term) forecasts. 

Step 3: Gather Your Data This is crucial. You'll need: 

• Sales forecasts (based on pipeline, history, and seasonality). 
• Accounts Receivable (A/R) aging report: Who owes you, how much, and when is it due? Factor in payment history. 
• Accounts Payable (A/P) schedule: Who you owe and when. 
• Fixed costs (rent, salaries) and variable costs (materials). 
• Planned CapEx, loan repayments, tax schedules. 

Step 4: Estimate Inflows & Outflows Plot your data onto your chosen timeline (daily, weekly, monthly). Be realistic about A/R collection, considering your Payment Terms and historical customer behaviour. Example: If you offer 30-day terms, how many pay on time? How many pay late? What's your average bad debt risk? 

Step 5: Calculate & Build Your Forecast Use a spreadsheet or accounting software. Input your opening balance and apply the formulas for each period to calculate net cash flow and closing balance. 

Cash Flow Projection Example (Simplified - 3 Months): 

B2B companies, especially those in international trade, face unique forecasting hurdles: 

• A/R Risk: This is the biggest variable. Late payments or customer insolvencies can cripple cash flow. 
• Trade Complexities: Currency fluctuations, varying international payment terms, and political risks add layers of uncertainty. 
• Supply Chain Disruptions: Issues with suppliers can impact both production and payment cycles. 

Forecasting identifies these risks, but managing them is key. This is where Allianz Trade adds value. Trade Credit Insurance (TCI) directly supports your cash flow management by: 

• Protecting Your A/R: It covers your losses if a customer fails to pay due to insolvency or protracted default, making your inflows more predictable. 
• Stabilizing Your Forecast: With TCI, you can forecast your A/R collections with greater confidence, reducing uncertainty. 
• Enabling Growth: TCI allows you to extend competitive credit terms and trade with new partners or markets more securely. 

Creating and maintaining an accurate cash flow forecast is fundamental for B2B stability and growth. It's your early warning system and your strategic roadmap. 

While no forecast can eliminate all uncertainty, combining it with robust risk management tools like Trade Credit Insurance from Allianz Trade significantly strengthens your financial resilience. It helps ensure your cash flow remains healthy, supporting your business ambitions. 

Want to learn how Trade Credit Insurance can stabilize your cash flow and mitigate risks? Contact an Allianz Trade expert today.