A cashflow forecast is a projection of the money coming into and going out of a project or business over time, week by week or month by month. It shows the lowest point the bank balance will reach and when, so a contractor can arrange funding before a shortfall arrives rather than after.
Worked example
A £400,000 job runs for four months. The Client pays 30 days after each Valuation and holds 5% Retention. The contractor pays suppliers on 30-day terms and subcontractors 14 days after approval.
| Month | Cash in | Cash out | Net | Cumulative |
|---|---|---|---|---|
| 1 | £0 | £60,000 | (£60,000) | (£60,000) |
| 2 | £95,000 | £110,000 | (£15,000) | (£75,000) |
| 3 | £114,000 | £105,000 | £9,000 | (£66,000) |
| 4 | £133,000 | £95,000 | £38,000 | (£28,000) |
The contractor needs £75,000 of funding in month two, and the job is still £28,000 in the red after month four. The gap is mostly the £20,000 retention and a final valuation that has not yet been paid. A profitable job has still tied up cash for months.
What moves the forecast
The forecast is only as good as the data behind it. Three inputs change the shape most:
- Valuation timing: the date the application is submitted, certified and paid, which depends on the contract and the client.
- Committed costs: orders already placed that will turn into invoices, even if nothing has been billed yet.
- Retention and release dates, including half release at Practical Completion.
Update the forecast after every valuation and after any change to the programme. Compare forecast and actual each month, and ask why they differ. A consistent gap between expected and actual payment dates usually points to a client who pays later than the contract says.
Related terms
Cost-to-Complete, Retention, Interim Payment, Net Payment Terms, Commitments/Liabilities, Cost-Loaded Schedule.
Planyard's cash flow forecasting builds the forecast from committed costs and valuations, so contractors can see the low point before they reach it.
