Downside cash scenarios: set a trigger in time to act

A downside cash scenario should identify the operating event, the first cash shortfall and the last date a response can take effect. Change the mechanism that causes the problem—such as an invoice paying late—then carry the response through later periods. A payment deferral helps one week and costs cash in another.

Describe an event that can actually happen

Start from the current cash forecast. Suppose $8,000 of customer receipts expected before a major payment is delayed into the next period. Revenue and the customer's total obligation remain unchanged in this timing-only case. Move the receipt rather than cutting revenue, deleting the invoice and lowering cash independently.

Scenario forecasts explore plausible combinations of drivers, as described in Forecasting: Principles and Practice. A downside case is not automatically a probability estimate. If there is no evidence for a numerical likelihood, compare the cash consequences without attaching one.

Locate the shortfall and its reversal

Assume $30,000 opening cash, an $12,000 minimum operating reserve and the receipts and payments below. The delayed $8,000 moves from period one to period two; other inputs stay fixed.

Downside receipts are $7,000 in period one and $18,000 in period two. The first closing balance is $11,000, which is $1,000 below the chosen reserve. The balance recovers next period, but that recovery cannot fund an earlier payment. Inspect the exact dates around the period-one low point before selecting an action.

Model a response beyond the first period

Suppose a supplier agrees to move $2,000 of a period-one payment into period two. Period-one payments fall to $24,000, so downside closing cash becomes $13,000. Period-two payments rise to $12,000: $13,000 opening + $18,000 receipts − $12,000 payments = $19,000. Period three still closes at $16,000.

The deferral clears the first reserve shortfall and leaves $1,000 above the reserve at that period end. It is not a $2,000 saving; the same money is paid later. Include any fee and confirm that the supplier arrangement is actually available. If the agreement is only a proposal, keep a separate response case and leave the unmitigated downside visible.

A new borrowing case needs the same discipline. Add the draw on its available date, the fee when payable and the principal on its repayment date. A balancing “funding” line that appears whenever cash is low hides whether any lender has committed to provide the money.

Work backward from the payment date

Assume the critical payment falls on day 21 of the decision window. A feasible response takes ten calendar days from starting the process to its cash effect. Its latest start is day 11, before adding any buffer for uncertainty. Discovering the issue on day 15 leaves only six days and makes that response too late for this deadline.

Choose an observable trigger earlier than day 11. For this case, it might be: by day 8, if the $8,000 receipt is still unsupported for the required payment date, use the delayed-collection case and decide whether to initiate the available response. The action is tied to one receipt and one deadline. A rule such as “act if annual revenue is 10% below plan” may react too slowly to a particular cash payment.

Separate timing changes from a weaker business

If the customer will pay less because part of the invoice is disputed, the loss may not reverse in period two. If the event is fewer orders, change units, related variable costs and collections together. Keeping every cost unchanged or cutting every cost by the sales percentage can each be wrong: rent may remain fixed while materials vary.

Show the base, unmitigated downside and response cases together. Ask which payment fails first, which action can affect it in time, and what happens at the action's later cash date. The 13-week cash forecast provides the dated schedule. Use the sensitivity-table guide when the question is how an output changes across two numerical ranges; that grid does not replace the event and response calendar.