Cash flow glossary

The terms you’ll meet in a cash flow forecast, defined in a sentence or two.

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13-week cash flow forecast: A 13-week cash flow forecast is a weekly projection covering one quarter, widely used by lenders, turnaround advisers and businesses managing tight cash. Learn more

Accounts payable: Accounts payable is money the business owes suppliers for goods or services already received.
Accounts receivable: Accounts receivable is money customers owe the business for goods or services already delivered.

Burn rate: Burn rate is how much cash a business spends per month more than it brings in. Gross burn is total monthly spending; net burn subtracts revenue.

Cash buffer: A cash buffer is the minimum balance a business aims to keep in the bank to absorb late payments or unexpected costs.
Cash conversion cycle: The cash conversion cycle is the number of days between paying for inventory or inputs and collecting cash from customers: days inventory plus DSO minus DPO.
Cash flow forecast: A cash flow forecast is a projection of the cash a business expects to receive and pay out over a future period, used to predict its bank balance week by week or month by month. Learn more
Cash runway: Cash runway is the number of months a business can operate before running out of cash, calculated as cash on hand divided by net monthly burn.
Closing balance: The closing balance is the cash left at the end of a period: opening balance plus cash in minus cash out.

Days payable outstanding (DPO): DPO is the average number of days a business takes to pay its suppliers.
Days sales outstanding (DSO): DSO is the average number of days it takes customers to pay after invoicing. A higher DSO means cash arrives later than sales.
Direct method: The direct method forecasts cash by listing expected receipts and payments line by line. Most small business templates use it.
Disbursements: Disbursements are all cash paid out in a period, such as payroll, rent, supplier bills, tax and loan repayments.

Indirect method: The indirect method starts from forecast profit and adjusts for non-cash items and working capital changes to arrive at cash flow.

Net cash flow: Net cash flow is receipts minus disbursements for a period. A negative figure means the bank balance falls in that period.

Opening balance: The opening balance is the cash available at the start of a forecast period. In a forecast, it equals the previous period’s closing balance.

Receipts: Receipts are all cash coming into the business in a period, including customer payments, loans received and owner investment.
Retainage: Retainage is a percentage of each progress payment that a construction client holds back until a project is complete.
Rolling forecast: A rolling forecast is updated at the end of every period and extended by one period, so it always looks the same distance ahead.

Scenario planning: Scenario planning means building best, expected and worst case versions of a forecast to see how cash holds up under different conditions.

Variance analysis: Variance analysis compares actual cash results with the forecast and explains the differences, so the next forecast can be more accurate.

Working capital: Working capital is current assets minus current liabilities. It measures the short-term cash cushion available to run operations.