Companies that look profitable can still run into trouble over cash. A practical framework for making cash flow something you can actually manage.
One of the more confusing situations a company can face is this: the income statement shows a profit and the bank account shows no money. The reason is straightforward. Profit is a concept about a period; cash is a question of timing.
Three gaps between profit and cash
- Payment terms: the sale happens today, the cash arrives 60 days later, and the costs are paid somewhere in between.
- Inventory: goods purchased create a cash outflow but do not reach the income statement until they are sold.
- Investment and debt: buying a machine and repaying principal do not hit profit directly, but they hit cash directly.
The 13-week cash flow forecast
The most practical tool for tracking cash is a 13-week forecast, roughly a quarter, broken down week by week. What separates it from the annual budget is that it is built on actual payment and collection dates.
- Opening cash position: every bank and petty cash balance.
- Expected collections: built from customer balances and due dates, with a realistic assumption about delay.
- Fixed payments: salaries, rent, SGK (the Turkish social security institution) contributions, tax, loan instalments.
- Variable payments: supplier payments, raw materials, logistics.
- Weekly closing: the expected cash position at the end of each week.
Two supporting reports
Accounts receivable ageing
Splitting receivables by how overdue they are (0–30, 31–60, 61–90 and 90+ days) shows collection risk early. The share of balances past 90 days in total receivables is one of the most useful early warning indicators a company has.
Accounts payable ageing
Running the same analysis on the supplier side makes it possible to prioritise the payment schedule against the cash position rather than against whoever calls first.
The tracking routine
| Frequency | What gets done |
|---|---|
| Daily | Post bank transactions and update the cash position |
| Weekly | Revise the forecast, chase collections, put the payment list up for approval |
| Monthly | Analyse the variance between forecast and actual |
The greatest benefit of this routine is seeing the problem coming. A cash squeeze spotted three weeks out leaves plenty of options: collections can be accelerated, payments rescheduled, short-term financing arranged in advance. The same squeeze noticed on the day the payment is due leaves exactly one.