Lesson 4 of 5
Liquidity forecast
6 min
The cash position looks a few days ahead. The liquidity forecast looks further, typically weeks to a few months, and answers questions like: will Contoso need to draw on its credit line in the third week of next month? Will there be surplus cash to pay down debt at quarter end? The forecast is built from data already in the system, mostly open payables and receivables with their due dates, plus planned flows.
What feeds the forecast
| Source | What it contributes | Depends on |
|---|---|---|
| Open supplier invoices | Expected outflows on their net due dates | Correct payment terms and baseline dates |
| Open customer invoices | Expected inflows on their net due dates | Correct terms; customer payment behavior |
| Purchase and sales orders (full scope, if integrated) | Earlier view of future invoices and payments | Integration of operational documents into cash management |
| Memo records and planned flows | Payroll, taxes, loan payments, capital projects | Treasury entering them on time |
| Treasury transactions | Loan, deposit and investment cash flows | Treasury management integration, where used |
Sources that feed the liquidity forecast.
Only as good as the due dates
The forecast places each open item on its net due date. That makes every due date error from the AP and AR courses a forecast error too. If supplier invoices are entered with the posting date as baseline instead of the invoice date, outflows appear later than reality. If customers routinely pay 15 days late, inflows appear earlier than reality. Neither is a system defect; both are data and behavior that a good forecaster understands and corrects for.
| Data issue | Effect on forecast | Fix |
|---|---|---|
| Wrong baseline date on supplier invoices | Outflows shown too late | Correct entry rules; test baseline defaults |
| Customer terms in sales differ from contract | Inflows on wrong dates | Fix sales area data |
| Customers pay late habitually | Inflows shown too early | Collections follow-up; forecasting adjustments |
| Payment blocks never released | Outflows appear due but never happen | Review blocks weekly |
| Unapplied cash not cleared | Receipts appear twice: as cash and as open invoice | Clear payments daily |
| Memo records not entered or not deleted | Missing or duplicated planned flows | Ownership and expiry dates for memo records |
Reading the forecast
Read the forecast by week and by source. A useful habit is to compare last month's forecast for a week with what actually happened, by source: payables, receivables, memo records. The source with the biggest gap is where data quality or behavior needs attention. At Contoso, Dan noticed customer receipts consistently arrived about a week later than forecast; the root cause was a set of fleet customers with 45-day contracts whose sales area data still said 30 days.
Forecasting is not only a system topic. Treasury combines the system forecast with knowledge the system does not have: a large customer known to pay at quarter end, a capital project that slipped, a planned dividend. The system's job is to make the factual part reliable and transparent, so that judgment is applied to a sound base rather than to a spreadsheet nobody can trace.
- Week 1High confidenceMostly bank balances, payment proposals and memo records
- Weeks 2–4Medium confidenceOpen AP and AR items by due date, adjusted for known behavior
- Weeks 5–12Lower confidenceMore dependent on orders, plans and assumptions
What would you do?
The liquidity forecast shows a large cash surplus in week 3, but the treasurer is skeptical. What should the analyst check first?
- The liquidity forecast looks weeks ahead using open payables, receivables, orders (full scope) and planned flows.
- Each open item lands on its net due date; due date quality is forecast quality.
- Unapplied cash, stale blocks and expired memo records distort the forecast.
- Compare forecast with actuals by source to find where data needs attention.
Check your understanding · not graded
Lesson check
1. On which date does an open supplier invoice appear in the liquidity forecast?
2. Supplier invoices use the posting date instead of the invoice date as baseline. What happens to the forecast?
3. Why can unapplied cash distort the forecast?
4. What should every memo record have?