Cash Flow Forecasting Keeps Operations and Finance in Step

A 45-Day View of Liquidity Lets Companies Accept More Orders

Growing manufacturers often win more business than their finances can handle. Without cash flow forecasting, leaders see that strain only after it hits.

Large enterprise and government buyers can stretch payment terms to 90 days or longer. Each order commits money to materials, labor and shipping long before the customer pays.

When several orders overlap, those costs pile up at once and cash runs short. Weeks or months later, the payments may arrive together. Those peaks and valleys are hard to predict and can hamper day-to-day operations.

The trouble starts with how companies are structured. Operations tracks orders, production and shipments, while finance tracks the bank balance, receivables and payables. Many leaders know what the bank balance is today but cannot say what it will be in 45 days, or why. So a company may accept an order it cannot fund or turn down one it could have handled.

Cash flow forecasting helps companies predict those swings. A shared forecast puts finance and operations teams on the same timeline. It shows how much capital each order requires, when cash will run short and when customer payments will ease the pressure.

Tompkins Ventures connects companies with partners whose platforms link order data to a real-time plan. Leadership teams can then decide when to take on more work, how to free trapped capital, when outside financing makes sense – and access that financing easily and inexpensively.

Cash Flow Forecasting Breaks Down as Companies Grow

At growing companies, finance teams usually manage cash flow forecasting on their own. They examine the bank balance, outstanding invoices and upcoming bills, often in a static spreadsheet. They then build a snapshot that starts aging the moment they finish it.

Operations holds the rest of that picture. It knows which purchase orders are open, which change orders just came in and when the next shipment will leave the dock. Those orders determine what the company will spend, and customer payments determine when the company gets money in its accounts.

Together, they determine how much cash the company will have next month.

Growth makes the problem worse. More orders mean more money paid up front for materials, labor and shipping. Once the goods ship, the company has spent the cash to manufacture the products. But finance only has an unpaid invoice until the customer pays.

With many projects running at once, the forecast falls further behind what is actually happening on the floor.

A forecast that lags behind operations cannot warn finance teams about an upcoming cash flow crunch. So they end up handling shortfalls as they hit instead of preventing them.

The usual fixes come late: an equity raise, short-term debt or invoice factoring, arranged under pressure. Each has its place. But a company that sees a shortfall months ahead can compare those options calmly and make the right choice.

Collaboration Starts With One Shared Timeline

The fix starts by putting both teams’ information in one place. Platforms from Tompkins Ventures’ partners pull in purchase orders, invoices and bank activity. They also capture receivables, payables and the payment terms the company has with its suppliers and customers. The platforms then arrange that data into an order-to-cash timeline.

The timeline shows how each order commits capital and when the customer should pay for it. Operations and finance see the same milestones in one view: what ships this week, which invoices need to go out and what materials the plant needs to buy. When a new order or a change order comes in, it lands on the same timeline both teams use.

That shared view changes how the two teams work together. Production needs no longer reach finance through scattered emails and meetings. Finance can update the forecast without chasing operations for dates, and both teams start their conversations from the same facts.

Because the timeline updates in real time as orders, invoices and payments move, the forecast stays current. It no longer ages in a spreadsheet.

Cash Flow Forecasting Tells Leaders Which Orders They Can Fund

Once the timeline is in place, the platforms update continuously, showing current cash, incoming receivables and outgoing payables at any moment. Leaders can look 30, 60 and 90 days ahead and trust what they see enough to act on it. They can spot when cash will tighten well before the crunch.

That is visibility plus actionability – the ability to see a problem and do something about it.

When new orders arrive, leaders know how much capital those orders require and when customers are scheduled to pay. If that spending lands in a week when cash is short, the company can examine options before the orders strain cash.

That is how cash flow forecasting lets leaders say yes to more orders. And because both teams work from the same plan, leadership can weigh cash alongside capacity before committing. Operations can see how a rush order or a larger material purchase affects cash, and finance can see why production needs the money.

Solid Forecasts Give Companies More Ways to Cover a Shortfall

When the forecast shows a shortfall, the first options sit inside the business. A company can adjust its production schedule. It can also free up cash already tied up in its operations.

To do that, leaders need to watch three standard measures of how fast cash moves through the company: days inventory outstanding, days sales outstanding and days payable outstanding. Our partners’ platforms track all three.

Days inventory outstanding shows how long the company holds inventory before selling it. Days sales outstanding shows how long customers take to pay. And days payable outstanding shows how long the company takes to pay its suppliers. Shortening the first two or lengthening the third frees working capital, and negotiating payment terms with customers and suppliers is the most direct way to move the last two.

But that is not always possible. So when the forecast still shows a shortfall, platforms from Tompkins Ventures’ partners can provide financing tied to a company’s orders.

Invoice financing pays the company right away on approved invoices, so it does not have to wait 60 days, 90 days or longer for customers to pay. Purchase order financing can cover upfront supplier and material costs on approved orders. That lets a company accept a larger order without draining cash it needs elsewhere.

These platforms offer a type of accounts receivable financing that differs from invoice factoring in three ways:

• Underwriting rests on the customer’s credit rather than the company’s balance sheet. That helps growing companies with a short financial history.
• The customer relationship stays intact. Factors often collect payments from customers, which can strain customer relationships. With these platforms, payments stay in the company’s name.
• Capacity grows with the business. Funding comes from pools of institutional capital, so the funding available scales with invoice volume.

The arrangement does not require giving up equity, and depending on its structure, the funding may stay off the balance sheet. Most important, the forecast shows how much money the company needs and for how long. So the company finances what it needs – no more, no less.

Cash Flow Forecasting in Practice

One manufacturer of specialized cargo containers shows how this works. Each order involved long production cycles, heavy upfront costs and extended payment terms after delivery.

Multiple projects tied up capital in work-in-progress or finished goods. Even with strong sales, leaders often had to decide whether to accept more orders or preserve liquidity.

The traditional slow and inflexible financing options did not appeal to the company. And founders did not want to dilute equity with a capital raise.

With a partner’s platform, the company moved its purchase orders, invoices and milestones onto one shared timeline. Finance and operations could then forecast cash across every active project. They could see future shortfalls and sell eligible invoices through the platform to pay for materials, manufacturing and shipping.

Without adding debt, the manufacturer increased production throughput and order velocity by 72%. And the solution eased the friction between finance and operations.

Growth Is Smoother When All Teams Plan Together

For growing manufacturers, cash flow forecasting turns growing orders into something leaders can plan for. Tompkins Ventures connects leadership teams with partners whose platforms put operations and finance on one timeline.

Those platforms cover everything from the first forecast to the financing behind it. With that shared view, companies can accept larger orders with confidence, keep production moving and arrange funding before the need becomes urgent.

Leadership teams that want a 45-day view of their available cash before their next large order can start with a call. Tompkins Ventures will set one up with the right partner.

Related Reading

• • Supply Chain Finance Solves Industrial Suppliers’ Catch-22
  • Speed to Market Starts With Procurement

  • For Hypergrowth, Cash Flow Often Beats Raising Capital

 

About Us