Stress-test a cash forecast for a late payment

01

Build a base case

Begin with the actual available cash balance and list expected receipts and payments by week. Use the expected cash date, not the invoice date. Include committed payroll, suppliers, rent, financing and taxes. Include purchases where applicable. Separate confirmed bank receipts from expected collections, and do not count transfers between your own accounts as new cash.

Record the owner, source and last update for each material assumption. Check the customer's terms and payment history, but avoid treating a promise or an overdue invoice as a guaranteed receipt. Choose a minimum operating cash level for planning and explain how it was set. It is a management assumption, not a universal rule.

02

Move one receipt and recalculate

In a hypothetical base case, opening cash is $12,000. Week one has $6,000 of expected receipts and $8,000 of payments, leaving $10,000. Week two has $5,000 of receipts and $9,000 of payments, leaving $6,000. Week three has $4,000 of receipts and $5,000 of payments, leaving $5,000.

Suppose $4,000 of the week-two receipts arrives in week three instead. Week two closes at $2,000: $10,000 plus $1,000 less $9,000. Week three then has $8,000 of receipts and $5,000 of payments, closing at $5,000. The receipt appears once, in its new week. The lowest weekly closing balance falls from $5,000 to $2,000. The sale has not necessarily disappeared.

03

Check the timing within each week

A weekly closing balance can hide a shortfall during the week if payroll clears before the customer payment. For the weeks near the low point, list material movements by expected day and recalculate a daily balance. Include cleared funds and any restrictions on their use. An unapproved credit facility is not available cash.

Consider other plausible cases, such as a partial payment, a disputed amount or a supplier payment arriving earlier than expected. Model each assumption explicitly, then combine stresses only when that combination is useful. The forecast is a planning estimate, not a prediction or an accounting profit calculation.

04

Assign a response and update

If a scenario falls below the business's planning threshold, identify an owner to verify dates and review available options with the people authorized to make decisions. Consider contractual obligations and seek an adviser or lender when appropriate. Do not assume a payment can be delayed or financing obtained without agreement.

Each week, replace estimates for the completed period with actual bank movements and explain material differences. Roll the forecast forward, update the assumptions and keep the base and delay cases labeled. This information is general. Financial decisions depend on the business's circumstances.

05

See a gap inside a week

Hypothetically, a business starts Monday with $3,000 and owes $5,000 payroll on Tuesday. A $4,000 customer receipt is expected Friday, with no other movements. The Friday closing balance would be $2,000, but the Tuesday projected balance is negative $2,000. A positive weekly closing balance does not establish that enough cleared cash is available for payroll on Tuesday.