Introduction
Cash flow projection is the backbone of financial planning for any business. Without it, companies risk liquidity shortages, missed growth opportunities, and strained supplier relationships. For suppliers, managing cash flow effectively is critical because delayed payments and unpredictable demand can quickly erode profitability.
This blog explains how to do a cash flow projection, explores the main levers of cash flow management, and introduces B2BE’s Customer Collections Management suite – a solution designed to automate collections processes, reduce aged debt, and improve cash flow. By the end, you’ll understand why forecasting matters and how automation can transform your collections strategy.
Table of Contents
- Key Takeaways
- What Is Cash Flow Projection?
- Why Cash Flow Projection Matters
- How to Do a Cash Flow Projection
- Main Levers of Cash Flow Management
- Introducing B2BE’s Customer Collections Management
- Benefits for Buyers and Suppliers
- Best Practices for Implementation
- FAQs
- Conclusion
Key Takeaways
- Cash flow projection helps businesses anticipate liquidity needs and avoid financial stress.
- Effective cash flow management directly impacts profitability and operational efficiency.
- B2BE’s Customer Collections Management suite automates remittance advice, collections, and dispute resolution.
- Integration with Beschaffung bis zur Bezahlung platforms enhances accuracy and reduces manual errors.
- Suppliers who master cash flow forecasting gain a competitive edge in uncertain markets.
What Is Cash Flow Projection?
Cash flow projection is the process of estimating your future cash inflows and outflows over a defined period, either on a weekly, monthly, or quarterly basis. It provides a forward-looking view of your financial health, helping you plan for expenses, investments, and unexpected challenges.
For suppliers, accurate projections ensure you can meet obligations without relying on costly short-term financing. It also helps you identify potential cash shortages before they become critical.
Why Cash Flow Projection Matters
Cash flow projection is an incredibly critical component of business survival and growth. According to Deloitte’s report about sustainable cash flow, 82% of business failures are directly linked to poor cash flow management. When companies cannot accurately predict their liquidity, they risk missed payments, strained supplier relationships, and even insolvency.
In today’s volatile economy, suppliers face multiple challenges, including fluctuating demand, delayed customer payments, and rising operational costs. These pressures make proactive cash flow forecasting essential for maintaining stability. Additionally, increasing regulatory requirements and ESG commitments demand greater financial transparency, adding another layer of urgency for businesses to get this right.
A recent McKinsey report about growth, profit and sustainability reinforces this point: organisations with robust cash flow forecasting capabilities are 30% more likely to achieve sustainable growth compared to those without. This statistic highlights that effective forecasting is to avoid risk and act as a strategic advantage that drives resilience and profitability.
How to Do a Cash Flow Projection
Creating a cash flow projection involves three key steps:
1. Gather Data
Collect historical cash flow statements, accounts receivable, and payable data. Include seasonal trends and customer payment behaviour.
2. Estimate Inflows and Outflows
- Inflows: Expected sales, collections, and other income streams.
- Outflows: Supplier payments, operating expenses, taxes, and loan repayments.
3. Build the Forecast
Use a spreadsheet or automated tool to project your cash position weekly or monthly.
Pro Tip: Automating this process with B2BE’s solution reduces errors and saves time.
Besides these three important steps, people have also asked other questions about cash flow that could help their business:
- How often should you update a cash flow projection?
Monthly updates are common, but weekly reviews are ideal for volatile markets. - What is the difference between cash flow projection and budgeting?
Budgeting focuses on planned expenses, while cash flow projection tracks actual liquidity.
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Main Levers of Cash Flow Management
Making sure your cash flow projection is accurate can help with management. It effectively requires focusing on the key drivers that influence liquidity. Here are the four main levers explained in detail:
1. Collections Efficiency
Collections efficiency refers to how quickly and accurately you can convert outstanding invoices into cash. When customers pay on time, your business has the liquidity needed to cover expenses and invest in growth. Delays in collections increase aged debt and force companies to rely on short-term financing, which adds cost and risk. Automating dunning processes and payment reminders can significantly improve efficiency.
2. Payment Terms
Payment terms define when and how you pay suppliers and when customers pay you. Negotiating favourable terms such as extended payment periods with suppliers or shorter terms for customers can ease cash flow pressure. For example, if you can secure 60-day terms with suppliers while collecting from customers in 30 days, you create a positive cash flow gap that strengthens your working capital position.
3. Inventory Control
Inventory ties up cash. Excess stock means money is locked in products that are not generating revenue. On the other hand, too little inventory can lead to missed sales opportunities. Effective inventory management ensures you maintain optimal stock levels, reducing unnecessary cash outflows while meeting customer demand. Techniques like just-in-time inventory and demand forecasting can help achieve this balance.
4. Dispute Resolution
Unresolved disputes such as discrepancies in invoices or delivery issues delay payments and harm cash flow. Every day a dispute remains open is a day cash is not flowing into your business. Implementing a structured dispute management process ensures issues are logged, tracked, and resolved quickly, reducing payment delays and improving customer relationships.
Introducing B2BE’s Customer Collections Management
Cash flow forecasting is only as good as your ability to collect payments on time. That’s where B2BE’s Customer Collections Management suite comes in. It automates dunning and remittance processes to reduce aged debt and improve cash flow.
What Does the Suite Include?
1. Automated Remittance Advice
Converts customer payment documents into structured data, streamlining cash allocation and reconciliation. This eliminates manual matching and accelerates the clearing process.
2. Customer Cash Collections
Automates dunning workflows and payment reminders, ensuring customers are notified promptly and consistently. This reduces overdue receivables and improves collection efficiency.
3. Dispute Management
Provides a structured process for logging, tracking, and resolving payment disputes quickly. Faster resolution means fewer delays in cash inflows and improved customer relationships.
Together, these solutions help suppliers streamline B2B collections, optimise cash flow, and gain real-time visibility into outstanding payments.
Benefits for Buyers and Suppliers
Cash flow projection and effective collections management create significant advantages for both suppliers and buyers. These benefits go beyond financial stability and can strengthen relationships, reduce risk, and improve operational efficiency.
Benefits for Suppliers
1. Improved Liquidity and Working Capital
Accurate cash flow projections allow suppliers to anticipate inflows and outflows, reducing reliance on short-term borrowing. This frees up working capital for strategic investments, such as expanding product lines or entering new markets.
2. Reduced Aged Debt
Automated collections processes, such as dunning workflows and remittance advice, accelerate payment cycles. By reducing overdue receivables, suppliers can maintain healthier balance sheets and avoid costly financing options.
3. Enhanced Financial Planning
With real-time visibility into outstanding payments and disputes, suppliers can make informed decisions about inventory, staffing, and capital expenditure. This level of control minimises surprises and supports long-term growth.
4. Stronger Customer Relationships
Efficient dispute resolution and transparent communication improve trust with customers. When issues are resolved quickly, customers are more likely to pay on time and maintain positive engagement.
Benefits for Buyers
1. Supply Chain Stability
Buyers benefit when suppliers have strong cash flow management because it reduces the risk of supply disruptions. Financially stable suppliers can fulfil orders consistently, even during market volatility.
2. Improved Negotiation Power
Buyers working with suppliers who have predictable cash flow can negotiate better terms, such as volume discounts or extended payment periods, without jeopardising supplier viability.
3. Operational Efficiency
Automated processes reduce administrative overhead for both parties. Buyers receive accurate remittance advice and faster dispute resolution, which streamlines their own accounts payable processes.
4. Collaborative Growth
When suppliers are financially healthy, they can invest in innovation and capacity improvements that ultimately benefit buyers through better products, faster delivery, and competitive pricing.
Best Practices for Implementation
Implementing cash flow projection and collections management effectively requires more than just tools. It demands a structured approach. Here are the best practices every supplier should follow:
1. Use Rolling Forecasts to Stay Agile
A static forecast quickly becomes outdated in today’s volatile markets. Rolling forecasts allow you to update weekly or monthly projections based on real-time data. This flexibility helps you respond to changes in demand, payment behaviour, or economic conditions without waiting for the next budgeting cycle.
2. Integrate Forecasting with ERP or Finance Platforms
Manual forecasting is prone to errors and delays. By integrating your cash flow projection process with ERP or finance platforms, you gain real-time visibility into receivables, payables, and inventory. This integration ensures that your forecasts reflect actual business activity, improving accuracy and decision-making.
3. Automate Collections Management
Manual follow-ups for overdue payments consume time and resources. Automating dunning workflows, payment reminders, and remittance advice speeds up collections and reduces aged debt. Solutions like B2BE’s Customer Collections Management suite also provide dashboards for monitoring outstanding invoices and disputes, enabling proactive action.
4. Monitor Key Performance Indicators (KPIs)
Tracking KPIs such as Days Sales Outstanding (DSO), Average Collection Period, and Dispute Resolution Time is critical. These metrics highlight bottlenecks in your collections process and help you measure progress over time. For example, reducing DSO by even five days can significantly improve liquidity and working capital.
5. Establish Clear Dispute Resolution Processes
Unresolved disputes delay payments and harm customer relationships. Implement a structured process for logging, tracking, and resolving disputes quickly. This not only accelerates cash inflows but also builds trust with customers, reducing the likelihood of future payment issues.
Cash flow management requires collaboration across departments. Aligning finance and sales teams ensures that credit terms, payment expectations, and customer communication are consistent, reducing confusion and improving collections efficiency.
Cash Flow Projection FAQs
1. How does cash flow management affect profitability?
Effective cash flow management reduces borrowing costs and ensures funds are available for timely investments. This directly improves profitability and supports sustainable growth.
2. What is the difference between cash flow projection and budgeting?
Budgeting focuses on planned expenses and income, while cash flow projection tracks actual liquidity and predicts when cash will enter or leave your business.
3. How often should I update my cash flow projection?
Monthly updates are common, but weekly reviews are recommended for businesses operating in volatile markets or with high transaction volumes.
4. Can automation improve cash flow forecasting accuracy?
Yes. Automation eliminates manual errors, speeds up data processing, and provides real-time insights, making forecasts more accurate and actionable.
5. Why is dispute management important for cash flow?
Unresolved disputes delay payments and increase aged debt. A structured dispute resolution process accelerates collections and improves customer relationships.
Conclusion
Cash flow projection is a strategic tool that determines whether your business thrives or struggles. In an environment where delayed payments, disputes, and rising costs can quickly erode profitability, accurate forecasting and efficient collections management are essential for resilience.
By automating critical processes such as dunning, remittance advice, and dispute resolution, B2BE’s Customer Collections Management suite helps suppliers reduce aged debt, accelerate cash inflows, and gain real-time visibility into their financial position. This not only strengthens liquidity but also builds trust with customers and ensures supply chain stability.
If this resonates with you, it’s time to take the discussion further with our experts.
Contact us to learn more about Customer Collections Management.