Forecasting supplier payments from your purchase orders

The moment a purchase order is approved, the money is spent. It leaves the bank weeks later, in instalments, on dates set by terms agreed with each supplier. Between the two moments it is invisible to anyone looking at the bank balance.

A payment forecast makes the committed money visible before it leaves. It answers one question: how much do we pay to suppliers, and when.

From terms to dates

Every supplier payment term is a rule for turning an order into one or more due dates. “30 days from invoice” is one instalment. “30% on order, 70% at 60 days from delivery” is two. Each instalment has three parts:

Some suppliers add a fixed payment day: the offset is applied, then the date moves to the 10th of that month. Write the rule down once per term, attach the term to the supplier, and every order from that supplier produces its schedule without anyone calculating it.

Building the forecast

With a schedule per order, the forecast is a table: one row per supplier, one column per month, each cell the sum of instalments due to that supplier in that month.

December is heavier than November, and the reason is one order from Alba Components split across two months. That is the kind of thing a forecast shows a month in advance and a bank statement shows the day after.

Firm figures and guesses

Not every amount in the table is equally certain, and mixing them is how a forecast loses trust. Keep three distinctions.

Approved against not approved. An approved order is a commitment. A draft, or an order waiting for approval, might never happen. Show the drafts, because they are the pipeline, but total them separately.

Invoiced against estimated. An instalment anchored to an invoice date is firm once the invoice is recorded. Before that, the forecast has to guess the date, usually from the order or the expected delivery. Mark estimated dates as such, and watch them turn firm as invoices arrive.

Still to pay against paid. Keep paid amounts in the history, so the total of the order still reconciles, but out of the amount you have to find.

Using it

• Monthly, with the cash plan. The next three months of supplier payments next to the expected receipts is the simplest cash forecast there is.
• Before approving a large order. The approval is the moment to see what the order adds to a month that is already heavy, and whether a different term would move it.
• When negotiating terms. The forecast shows what 30 extra days from a supplier is worth to you in a given month, which is a better basis than a general wish for longer terms.
• By department. If departments raise their own orders, each should see its own commitments.

The forecast in StockBold

In StockBold a payment term is a code with instalment rules: each instalment has a percentage, an anchor, an offset in days and optionally a fixed day of the month, and the percentages add up to 100. Anchors are the order date, the approval date, the invoice date, the receipt date, or the end of the invoice or receipt month. A term can sit on the supplier as a default or on an individual order, and the order’s own term wins.

The payment forecast report shows suppliers as rows and months as columns, in your currency whatever currency the orders use, for the period you choose, with a department filter. Approved, pending and draft orders are all included; the totals split what is still to pay by approval status, approved apart from not approved, and by invoice coverage, amounts with a settled date apart from those still resting on an estimate. Paid amounts are shown separately. Orders with no usable term cannot be forecast, and a banner lists the suppliers concerned so the gap is visible rather than silent.

Read more about purchase orders in StockBold, or the help guide on payment terms and instalments.