Managing cash flow day to day: the 13-week cash forecast, invoicing and credit control

Profitable businesses still run out of cash. Customers pay late, a VAT bill lands in the same week as payroll, or a large stock order goes out before the sales come in. None of this shows up clearly on a profit and loss account, which is why day-to-day cash management needs its own tools.

This guide covers three: a rolling 13-week cash forecast that shows problems weeks before they arrive, invoicing habits that get you paid sooner, and a simple credit control routine for chasing what you are owed. It includes the UK’s statutory late payment rights, which many small businesses never use.

Why a 13-week cash forecast

A 13-week cash forecast is a week-by-week projection of the cash you expect to receive and pay out over roughly the next quarter. It is built directly from expected receipts and payments, not from your profit forecast.

Weekly detail matters because cash problems are about timing. A month can look fine in total while one week inside it goes overdrawn because payroll, rent and a supplier run all fall due before customers pay. Thirteen weeks is long enough to see the next VAT quarter, a seasonal dip or a large order coming, and short enough to forecast with reasonable accuracy from invoices, orders and bills you already know about. The format is widely used by lenders and turnaround advisers for exactly this reason, but it is just as useful for a healthy small business.

Building the forecast

1. Start with today’s actual bank balance across all accounts.
2. List expected receipts week by week. Use your list of unpaid invoices and when each customer actually tends to pay, not the due date. Add expected card or marketplace payouts, and any other money coming in, such as loans or grants.
3. List payments week by week: payroll, rent, supplier bills by due date, loan repayments, VAT or other tax, subscriptions and planned one-off purchases.
4. Calculate net cash flow each week and the closing balance, which becomes next week’s opening balance.
5. Set a minimum cash buffer, the lowest balance you are willing to hold, and highlight any week that falls below it.
6. Each week, replace the week just gone with actual figures, add a new week thirteen, and note where the forecast was wrong and why.

The weekly review is where most of the value comes from. Comparing forecast with actual shows you which customers always pay late and which costs you keep underestimating, and the forecast gets more accurate every week as a result.

A worked example

An example (illustration only): a small design studio starts with £18,000 in the bank and sets a minimum buffer of £10,000. Here are the first six weeks of its forecast.

Week 6 is the problem. Payroll, a quarterly VAT payment and a supplier run all fall due together, and the balance drops to £4,400, well under the £10,000 buffer. Because the studio can see this five weeks ahead, it has options: chase two overdue invoices worth £4,000 now, ask a large client for a deposit on a new project, agree with one supplier to pay a week later, or arrange a small overdraft in advance rather than in a hurry. Any two of these would probably keep it above the buffer. Without the forecast, the studio would have found out in week 6.

Invoicing to get paid faster

Most late payment starts with the invoice. A few habits make a large difference.

• Agree payment terms in writing before work starts, and put them on every invoice.
• Invoice immediately, the day the work is done or the goods are sent, not at the end of the month.
• Include everything the customer’s accounts team needs: a unique invoice number, the purchase order number if they use one, the amount owed, the due date, your bank details and a named contact. If you and your customer are both VAT registered in the UK, you must issue a VAT invoice with the required details.
• Send it to the right person. Ask new customers who pays invoices and how they like to receive them.
• Make paying easy, with bank details and a payment link where possible.
• For large or long projects, ask for a deposit and stage payments rather than one invoice at the end.

Credit control: a simple routine

Credit control means deciding who gets credit, on what terms, and following up when they do not pay. For a small business it can be a short weekly routine.

1. Check new customers before offering credit: a credit report, references, or a smaller first order.
2. Send a friendly reminder a few days before the due date for larger invoices.
3. On the day after the due date, send a polite note with the invoice attached.
4. After about a week overdue, phone. A call usually gets a clearer answer than another email.
5. After about thirty days overdue, send a formal letter that mentions late payment interest and compensation.
6. Decide in advance when you stop supplying an account that is not paying.

Run an aged debtor report every week (it lists unpaid invoices by how overdue they are) and work from the oldest and largest first.

Your UK late payment rights

For business-to-business sales in the UK, the law gives you some protection. Payment terms should usually be no more than 60 days for business transactions (30 days for public authorities), although longer terms can be agreed if they are fair to both sides. If no payment date was agreed, payment is late 30 days after the customer receives the invoice or after you deliver, whichever is later.

Unless your contract sets a different rate, you can charge statutory interest of 8% plus the Bank of England base rate on late business payments. You can also claim a fixed sum for debt recovery costs, once per invoice: £40 for debts under £1,000, £70 for £1,000 to under £10,000, and £100 for £10,000 or more.

Many small firms never use these rights for fear of upsetting customers. Even if you choose not to charge, mentioning them in your terms and reminder letters often speeds payment.

Common mistakes

• Forecasting receipts on due dates instead of when customers really pay.
• Forgetting irregular payments: quarterly VAT, annual insurance, corporation tax, equipment replacement.
• Building the forecast once and never updating it.
• Treating your overdraft limit as your buffer. Arrange extra borrowing before you need it, not in the week you need it.
• Letting a large customer’s slow payment drift because you are reluctant to ask.

A 13-week forecast takes an hour or two to set up and perhaps twenty minutes a week to keep current. In return, cash shortfalls show up weeks in advance, when you still have time to deal with them.