Cash Flow Forecasting in 2026: Framework for Faster and More Accurate Insights

Cash flow forecasting is the process of developing a forward-looking view of cash. It’s enabled by functions like cash position calculation and cash flow visibility, and takes accounting records like AP, AR, payroll, debt, and taxes as inputs.

Cash flow forecasting, especially on multiple time horizons, is essential for liquidity planning. Liquidity is what keeps an organization solvent; even if margins dip or economic conditions worsen, it’s possible to stay afloat as long as liquidity is available. But planning around liquidity is more challenging than ever in 2026. The volatile rate environment, evolving funding markets, potential supply chain disruptions, and the availability of real-time data combine to result in a high bar for stakeholder to clear when forecasting cash and liquidity.

Given these challenges and the mission-critical role played by cash flow forecasting, we’ve written this guide for accounting and FP&A teams who want to understand and adopt a modern forecasting strategy incorporating automation, AI, and present-day best practices. Incorporating these principles will allow your organization to make better decisions based on more accurate data, with no added increase in manual work or need for additional headcount.

Key Takeaways:

• Cash flow forecasting is a critical process for organizations of all sizes, but those with multiple entities and accounts face particular challenges that only modern tools can address.
• The best forecasting processes use multiple time horizons, direct and indirect forecasting, and various forecasting methods to capture the most complete cash flow picture possible.
• Manual data imports and spreadsheet-based processes diminish the timeliness and utility of cash flow forecasts.
• Hidden liquidity risks are almost impossible to detect without a forecasting process built on real-time data.
• Forecasts are only as good as their underlying data, making modern data tools invaluable for teams who want to deliver high-quality forecasts.

Why Cash Flow Forecasting Matters More Than Ever In 2026

Being able to accurately forecast your organization’s cash flow is the best defense in an uncertain environment.

In order to effectively bring financial data to the attention of stakeholders, however, accountants have to do more than issue reports. With modern tools now automating or truncating much of the copy-paste work involved in traditional accounting workflows, accounting teams are increasingly expected to partner strategically with stakeholders. Forecasting is one effective way to make this ambition a reality.

Cash Flow Forecasting As A Strategic Discipline

Providing strategic value requires thinking beyond the immediate, mechanical reality of a cash flow forecast. In concrete terms, a forecast is concerned with questions like, “can we make payroll?”, but in strategic terms, the purpose of a forecast can also be to consider funding needs, terms for negotiating with lenders, or capex and hiring plans.

Such big-picture strategic decisions may seem too lofty to depend on daily or weekly cash flow forecasts. Consider, however, that many organizations rely purely on the month-end close to review financials, and are otherwise flying blind. If these organizations could institute daily or even weekly cash reports, they would flag liquidity issues earlier, be subject to fewer surprises, and catch errors or fraudulent activity sooner. Unless you can manage these micro issues, confidence will be lacking when you try to plan on the macro scale.

For every backward-looking report, moreover, a forward-looking forecast can provide additional context and elevate the quality of insight. Stakeholders want to know what happened in the organization’s cash accounts, but they also want to know what’s likely to happen, along with different scenarios and outlooks. When finance teams can provide these insights frequently and with unfailing accuracy, they embody the partnership-oriented accounting philosophy that modern boards and investors are increasingly looking for.

How Accounting And FP&A Split Responsibilities

In most organizations, the responsibility for cash flow forecasting is split between two teams: accounting and FP&A.

Accounting

• ‍Ensures the forecast is grounded in reality. This includes maintaining timely bank and cash reconciliations, validating AR and AP aging, and producing clean, complete data on cash flows. Accounting is expected to deliver a trusted, up-to-date view of cash that the rest of the organization can rely on without qualification.
  

FP&A

• ‍Translates that trusted cash data into a forward-looking model. This includes layering in growth plans, hiring, pricing, seasonality, and downside or upside scenarios. It also involves stress-testing how those scenarios might affect liquidity. The role of FP&A is not to validate any data, but to interpret it and contextualize decisions around risk, timing, and strategic trade-offs.

While these are separate functions, they’re most effective when they share a single source of truth for cash and collaborate on assumptions and scenarios. In the best cases, accounting owns a reconciled, frequently refreshed cash view, and FP&A leverages that exact dataset to run defined scenarios, quantify liquidity impact, and recommend specific actions.

But this division of labor is a two-way street. For example, FP&A can identify forecast drivers that materially impact near-term liquidity (e.g., expected customer payment delays) and feed them back to accounting. Accounting can then monitor actual cash activity relative to those drivers to validate variances and flag breakdowns early. The end result is a continuous set of workflows that validate and strengthen one another.

Cash Flow Forecasting Fundamentals: Definitions, Horizons, And Methods

A full cash flow forecast can be complex, although the concepts that are used to build it are basic. The following five concepts form the foundation of a cash flow forecast:

• Cash on hand: The actual amount of money available in bank accounts at the starting point of the forecast.
• Cash coming in: The timing and amount of customer payments expected to be collected (regardless of when revenue is recorded).
• Cash going out: The timing and amount of fixed and discretionary payments the business expects to make.
• Timing: The alignment between when cash is received and when cash must be paid.
• Assumptions: The explicit expectations around behavior and timing that inform your team’s projections of cash inflows and outflows.

Any cash flow forecast, no matter how precise, is an estimate based on a set of assumptions. Short-term and long-term forecasts take different inputs and rely on different assumptions; likewise, accountants use different methods and apply unique treatments to cash data and line item inputs. But in all cases, the end forecast is an estimate, and probabilistic rather than deterministic.

What Is Cash Flow Forecasting (And How Does It Differ From Profit)?

The goal of cash flow forecasting is to estimate cash inflows and outflows over a defined period and determine the resulting ending cash balance.

Cash flow forecasting differs from P&L because it’s anchored to actual cash movement. P&L records revenue and expenses when they’re earned or incurred, regardless of when cash is collected or paid. A sale can improve P&L even if payment is not received for weeks or months, and P&L also includes non-cash items like depreciation and amortization. Cash flow forecasting, by contrast, only reflects cash that is expected to move into or out of the organization’s bank accounts.

CFOs and boards care about P&L forecasting, which estimates future performance and is essential for budgeting, target-setting, and evaluating growth plans. Cash flow forecasting, however, is the primary tool for managing liquidity. In order to meet payroll, vendor payments, and debt obligations, the organization must have cash available when those payments are due. Positive P&L does not guarantee that outcome, and cash flow forecasting is the only way to assess whether the organization can meet its obligations when they come due.

Direct Vs. Indirect Cash Flow Forecasting

Accountants use two distinct approaches for cash flow forecasting: direct and indirect.

Direct cash flow forecasting projects cash by estimating actual cash receipts and disbursements line by line. Customer collections, payroll, rent, capital expenditures, and taxes are forecast independently before being collated for a final forecast. The direct method is most commonly used for short-term liquidity management over daily to 13-week horizons.

Indirect cash flow forecasting starts from a projected net income figure (taken from the P&L forecast) and adjusts it for non-cash items and expected changes in working capital to estimate future cash generation. The indirect method is most often used for longer-term planning and alignment with budgets and financial statements.

When your goal is to calculate short-term liquidity (for example, in order to manage payment schedules or debt covenants), the direct approach is preferable. It models actual cash receipts and disbursements by date, giving you a granular view into liquidity expectations.

When your goal is to develop long-term operating plans or structural assessments, use the indirect approach. It derives cash expectations directly from your P&L forecast, and reveals whether the organization is cash generative over longer time horizons.

Short-Term Vs. Long-Term Cash Forecasts

For most organizations, meaningful value is created when multiple time horizons are applied to cash flow forecasts.

Short-term cash flow forecasts (spanning daily to 13-week views) are indispensable for liquidity planning, payment timing, and near-term decision-making. Without this short-term view, your organization can’t be sure that accounts will be sufficiently liquid to meet upcoming payment obligations.

Medium or long-term forecasts (spanning yearly or multi-year views) anchor larger strategic decisions. Fundraising, capital structure decisions, and budgeting plans depend on a birds-eye view of the organization’s likely liquidity and cash generation over time, rather than at one specific moment.

Organizations should leverage both short-term and long-term forecasts. The former create certainty that immediate liquidity risks and payment timing issues can be handled, while the latter create confidence around long-term plans and uncover actionable risks and opportunities. Moreover, short- and long-term forecasts feed inputs back into each other, creating a reinforcing loop of data and assumptions that fosters operational strength.

Common Forecasting Methods

Accountants have multiple methods at their disposal when building a cash flow forecast. It’s best practice to rely on multiple techniques, particularly when the organization’s cash flow is subject to volatility.

Below are a few key methods:

• Percent-of-sales: This method forecasts cash inflows and outflows as a fixed percentage of revenue, based on historical relationships. It assumes past relationships will hold, which makes it suitable for mature businesses with stable cost structures and predictable working capital behavior.
  
  
• Straight-line extrapolation: This method projects future cash flows by extending historical trends forward at a constant rate. It’s straightforward and fast, which makes it useful for short-term forecasting in stable environments. However, it ignores seasonality, structural shifts, and structural changes to the organization.
  
  
• Delphi method: This method uses structured input from internal experts across finance, operations, and leadership to estimate future cash flows. Inputs are gathered iteratively and refined until a consensus emerges. It provides valuable context during periods of uncertainty, transformation, or rapid change.
  
  
• Market and industry inputs: This method relies on external signals, including macroeconomic trends, interest rates, customer buying patterns, and peer performance. It can help you anchor internal forecasts using external data points, and can reveal impending changes that are yet to materialize in company data.

To effectively combine these methods, teams first generate backward-looking baseline figures using percent-of-sales or straight-line extrapolation. On top of this baseline, market and industry dynamics can be used to adjust and stress-test assumptions. Finally, insights gained using the delphi method are incorporated to account for known upcoming events or risks.

A layered approach that relies on multiple methods will result in a more complete and three-dimensional cash flow forecast than simply using one or two baseline methods.

Building A Cash Flow Forecast Step-By-Step

Given the multiple methods, approaches, and time horizons that accountants can employ when forecasting cash flows, the path to developing an effective, repeatable process isn’t always clear. Below, you’ll find a framework that details the actual steps required to build a cash flow forecast, from start to finish.

Step 1: Gather And Verify Data (Bank, ERP, AR/AP, Payroll)

First, identify every system, report, or source of information that relates to your organization’s cash. These can include:

• Bank statements or data feeds
• ERP and general ledger
• AR and AP aging
• Payroll and benefits
• Tax schedules
• Loan schedules

No matter whether you’re compiling a daily, 13-week, or yearly cash forecast, you want to use reconciled cash balances. Without a reconciled cash view, your opening cash (the starting point which your entire forecast is built on) cannot be trusted. That’s a problem, because even a minor error can cascade through your calculations, calling the entire forecast into question.

Such errors become more common when portions of your workflow are handled manually. Manual processes like CSV exports across multiple data sources or copy-paste spreadsheet wrangling tend to introduce more errors (along with more data lags) relative to integrated feeds. If your objective is to accurately forecast the organization’s cash, then it’s essential to begin with an accurate snapshot of the organization’s current cash.

Step 2: Define Time Buckets And Forecast Horizon

Next, it’s time to design your forecast. 

While different forecast horizons serve their specific purposes, it’s also important to identify the time buckets that will feature in your forecast.

Time horizon is the total length of time covered by your forecast (e.g., weekly, 13-week, yearly).

Time buckets define how your time horizon is divided (e.g., weekly buckets for a 13-week forecast, monthly buckets for a yearly forecast).

Bucketing is deceptively important. Using overly fine buckets on a long time horizon can result in a highly precise forecast that nevertheless lacks signal. Using overly coarse buckets on a short time horizon can skip over important variance, masking near-term liquidity risk. The best combination of horizons and buckets achieves clear visibility into cash risk without creating unnecessary complexity or false precision.
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Below are some general bucketing guidelines:

Weekly forecast:
Use daily buckets. At this horizon, cash decisions are timing-sensitive, and even a one-day delay in a large inflow or outflow can matter.

13-week forecast:
Use weekly buckets. This is the standard horizon/bucket structure for short-term liquidity management.

Yearly horizon:
Use monthly buckets. Monthly aggregation aligns with the close cycle, budgeting process, and working capital analysis.

5-year horizon:
Use annual or quarterly buckets. On this time horizon, long-term drivers and directional trends dominate.
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Step 3: Model Cash Inflows (Collections, New Sales, Financing)

Now, it’s finally time to forecast, starting with collections.

Your goal when modeling cash collections from existing AR is to arrive at a reasonable estimate of how much cash will arrive in your accounts, and when, based on AR aging and historical collection patterns. In general, the longer an invoice is outstanding, the higher the likelihood of late payment (or default).

For example, you might assign these ballpark probabilities to the following aging buckets:

• Current AR (0-30 days outstanding): 80-90% probability collected this month
• 30-day AR (31-60 days outstanding): 50-70% probability collected this month
• 60-day AR (61-90 days outstanding): 30-50% probability collected this month
• 90+ day AR (91+ days outstanding): 10-30% probability collected this month

Then, using the following AR bucket values and the midpoint of each probability range above, you might calculate the following cash inflows:

In total, this forecast assumes your organization will collect $131,000 out of a $200,000 AR balance over the next month.

Otherwise, you can use a DSO (Days Sales Outstanding) calculation, which summarizes the average collection period for all receivables into a single number, allowing you to estimate cash inflows based on total AR.

With your collections forecast in hand, the next step is to layer on additional inflow channels:

• New sales/projected revenue: Expected cash from future sales. Can be modeled using order trends, pipeline data, or sales forecasts. Be sure to differentiate between contracted sales that haven’t been invoices and pipeline that hasn’t been closed. 
• Financing inflows: Debt draws, equity injections, or other capital contributions.
• Asset sales/disposals: Proceeds from selling equipment, real estate, or investments.
• Interest or dividend income: From cash or investment holdings.
• Grants, rebates, or tax refunds: Material for certain industries or jurisdictions.
• Insurance proceeds: Cash expected from insurance claims

Taken altogether, inflows from these channels can be combined to generate a reasonably accurate forecast for expected cash inflows over the given period.

Step 4: Model Cash Outflows (Operating, Capital, Financing)

Once inflow projections are complete, outflow projections are next. Start by separating operating and non-operating outflows, and creating a list of each.

Operating outflows are cash payments that arise from a company’s core business activities, including paying suppliers, employees, taxes, and routine operating expenses. These outflows are recurring and predictable, and reflect the “cost of doing business”. They include:

• Payroll and benefits
• Supplier payments / cost of goods sold
• Rent and utilities
• Insurance premiums for operational coverage
• Commissions
• Operating taxes and regulatory fees

Non-operating outflows are cash payments that stem from activities outside normal operations, like debt repayment, capital expenditures, or investment purchases. These outflows are irregular and often require modeling using scenario analysis.

• Debt principal or interest payments
• Capital expenditures (purchase of equipment or property)
• Dividend payments
• Investment purchases or other financing-related outflows
• Non-operating taxes
• One-off payments (e.g., legal settlements, licenses)

Note that some recurring payments are still classified as non-operating (for instance, debt payments) because they relate to financing, and not to the organization’s regular operations.

When you model these outflows, be sure to use historical patterns, payment terms, and seasonality to estimate timing and amounts for operating outflows, while using assumptions or scenarios for non-operating outflows. This ensures that your forecast captures both the predictable cash demands of day-to-day operations and the irregular outflows that vary across periods.

Step 5: Calculate Net Cash And Ending Balances

You’ve modeled inflows and outflows, and you know your opening cash based on trusted, reconciled balances across all cash accounts. These figures are sufficient for you to calculate net cash and an ending balance:

Net cash = total cash inflows - total cash outflows

Ending balance = opening cash + net cash

Helpfully, the ending balance of the forecasted period feeds into the opening cash for the next forecast period. When forecasting multiple periods, this creates a continuous chain, ensuring that each period’s projection reflects the cumulative effect of inflows and outflows.

Ultimately, the goal of your forecast is to arrive at accurate ending balances based on thoughtful, multidimensional forecasting. Along the way, you may identify certain noteworthy events like covenant breaches, minimum cash violations, or negative balances in accounts. Note these in your forecast with simple flags, as they can provide useful context beyond net cash and ending balances.

Step 6: Set A Cadence For Updating Actuals Versus Forecast

Your cash flow forecast is complete and reflects the totality of expected inflows and outflows. It uses reconciled opening cash and delivers an accurate estimate of ending balances. The final step is to operationalize this process.

13-week forecasts with weekly time buckets, which many organizations use as their de facto short-term forecasting structure, should be refreshed at least weekly. (Tight liquidity or exceptional volatility may merit more frequent refreshes.) Accomplish the refresh by replacing the prior week’s forecast with actuals, reconciling variances, and simply rolling forward by one week.

This weekly cadence will ensure that your cash flow forecast reflects the most recent data and accounts for irregularity in both inflows and outflows, enabling stakeholders to take corrective action or update assumptions accordingly.

From a procedural standpoint, you’ll also want to exercise version control and governance. A weekly process can become cumbersome if too many owners, approvals, or manual sign-offs are involved; keep it lightweight and leverage automation where possible to maximize impact while minimizing operational burden.