Updated: November 2026 · Reading time: 6 minutes
What is a cash flow forecast?
A cash flow forecast is an estimate of the receipts and payments a company will have over the coming months, so it can know in advance how much cash will be available at any given time. It helps anticipate liquidity shortfalls, decide when to draw on financing and know when there will be surpluses that can be invested.
It should not be confused with the budget. The budget records income and expenses on an accounting basis; the cash flow forecast records when money actually comes into and leaves the bank. A December sale collected at 90 days is 2026 income, but a March 2027 receipt. That is why a company can be profitable and still run out of cash.
Short-term forecast and annual forecast
It is worth working with two time horizons, because they answer different questions:
- Short-term forecast: it usually covers the next 13 weeks and is updated every week. It is operational: it tells you whether you will need to draw on your credit facility at the end of the month or which payments should be rescheduled.
- Annual forecast: it is prepared month by month and linked to the budget. It is strategic: it is used to calculate the year’s financing needs, plan investments and negotiate with banks well in advance.
These weeks, with the 2027 budget on the table, are the time to prepare the annual forecast. The short-term one should always be kept up to date.
How to prepare your 2027 cash flow forecast in five steps
- Start from a real position. The starting point is the balance of all banks, accounts and credit facilities at year end. If that figure is not reliable, nothing else will be. An up-to-date global banking position means you do not start with errors.
- Add the known receivables and payables. Issued invoices pending collection and received invoices pending payment already have a due date in the ERP: they are the most reliable part of the forecast.
- Add recurring and budgeted items. Payroll and extra salary payments, taxes (VAT and corporate income tax instalments), rent, insurance and utilities. Then add the sales and purchases forecast in the budget, applying your company’s real average collection and payment periods, not the ones stated in contracts.
- Include financing. Loan repayments, maturities and renewals of credit facilities, reverse factoring (confirming), factoring and leasing. A poorly scheduled credit facility renewal is a common cause of the liquidity squeeze nobody expected.
- Build scenarios. At least three: a base scenario, an optimistic one and a pessimistic one, for example with 30-day collection delays or a drop in sales. This will show you in which months your company is most vulnerable and how much financing you would need in the worst case.
Common mistakes when preparing the forecast
- Using theoretical collection periods. If your customers pay at 75 days even though the contract says 60, the forecast should reflect 75.
- Forgetting seasonality. Extra salary payments, tax months and holiday periods concentrate payments or slow down collections.
- Preparing it in January and forgetting about it. A forecast that is not updated stops being useful within a few weeks.
- Not comparing it with reality. Reviewing the variances between forecast and actual figures every month, and understanding their causes, is what makes the forecast increasingly accurate.
How KAT Treasury helps
Preparing the forecast once a year in a spreadsheet is possible; keeping it updated every day is the hard part. KAT Treasury, QLM’s TMS, feeds forecasts automatically with the ERP’s receivables and payables and with financing maturities, and links them to the real banking position, which it receives from all your banks via EDItran, APIs and SWIFT. It also works with expected collection and payment dates, which make due dates more accurate and allow a much more reliable treasury horizon to be built.
It lets you work with several scenarios, analyse variances between forecast and actual figures and view the results in a Power BI dashboard (KAT Analytics). It integrates with SAP, Microsoft Dynamics 365, Business Central, Sage and many other ERPs on the market. It is what our treasury automation guide calls the predictive level.
If you would like to see how it would work with your banks and your ERP, request a demo.
