Growth makes cash lumpier because every new contract costs money before it earns any. The hire starts, the materials arrive and the supplier is paid weeks before the first invoice is raised, and the invoice is paid weeks after that. In a business of 11 to 50 people on 30-day terms, each win adds a stretch of weeks in which more cash is committed than is coming in, and those stretches land on top of a fixed calendar of payroll, PAYE, VAT and rent that does not move. The forecast that shows the gap is one that places each commitment on the date the cash leaves and each receipt on the date it is expected to arrive, then reads the low point.

Why A Growing Business Runs Short While Profit Rises

A profitable business and a business with cash in the bank are two different descriptions, and the difference is timing. Our guide to why profitable businesses run out of cash sets out the mechanism in full and works the arithmetic of a 20% growth step. This page is about what that arithmetic looks like in a real quarter, one contract at a time.

The principle is stated plainly by the bodies that advise on it. The Insolvency Service's guidance for directors says that even successful businesses can experience cash flow difficulties as they grow. The British Business Bank puts it more sharply: an otherwise profitable, high-growth company may run out of cash because its need for working capital continues to increase. ACCA's technical material on working capital gives the reason. If turnover doubles, inventory, receivables and payables tend to double with it, and every increase in the working capital a business needs is a cash outflow that has to be funded before the sales it supports have been paid for.

Put the pieces together and the pattern is not a failure of anything. Costs are incurred when work is done. Revenue is recognised when the invoice is raised. Cash arrives when the customer pays. For a business whose customers pay after its own staff and suppliers have been paid, the amount tied up between those moments rises as activity rises. The arithmetic is proportional in the simple case: if receivables run at 45 days of sales, 20% more sales means 20% more receivables, and that increase is cash the business has to find while its margins, its debtor days and its cost base stay exactly as they were. That is our arithmetic, not a published benchmark, and the page linked above shows the working.

The pattern has an exception worth naming. A business that is paid before it pays its suppliers, on deposits or in advance, can have a negative operating cycle, in ACCA's terms, and for that business growth releases cash rather than absorbing it. Most businesses in the 11 to 50 band selling to other businesses on credit are not in that position.

Overtrading: The Name For Growing Faster Than Your Cash

The professional bodies have a word for the pattern when it gets ahead of the business. ACCA defines overtrading as insufficient working capital to support the level of business activities. The Association of Corporate Treasurers describes it in terms any finance manager will recognise: when profitable companies expand too fast, they can run out of cash and liquidity and go bust.

Two things follow from the definition. The first is that overtrading is not a loss-making problem. The profit and loss can be improving every month while the bank balance falls, which is why the monthly management pack does not catch it. The second is that nobody publishes a count of how often it happens. The Insolvency Service records a cause for each insolvency but does not consider that data suitable for publication as Official Statistics, and no other primary source counts failures that occur during growth. There is no figure for it. The mechanism is documented; its frequency is not.

Lumpy Is Not Seasonal

Seasonal cash flow has a statistical definition. The Office for National Statistics describes seasonal effects as systematic, calendar-related variation associated with the time of year, the same pattern in the same months, which is why it can be adjusted out of a time series. A seasonal business knows its trough is coming and roughly when. Our guide to forecasting cash flow for a seasonal business covers that case.

Lumpy is different, and no professional body defines it, although ACCA has used the word to describe small-business cash flow. Lumpy cash is the product of events rather than months: a contract signed in October, a hire that starts in November, a supplier invoice that falls due the same week as PAYE. The pattern does not repeat, so it cannot be adjusted for. It has to be forecast event by event, which is the method the rest of this page sets out.

A Worked Example: One Contract, One Quarter, Dated

Every figure below is invented for the example and labelled as such. The statutory dates are real. The business is a 28-person services company with revenue of around £4 million, a finance team of three, one entity, two bank accounts and Xero as its accounting platform. It gives customers 30-day terms and, from its own payment history, expects to be paid at around 40 days. It pays suppliers on 30-day terms in a Friday payment run. Payroll leaves on the last working day of the month. Its VAT quarter ends on 30 September and its accounting year on 31 March. It holds a cash floor of £120,000, below which the finance director wants to know in advance.

The quarter runs for thirteen weeks from Monday 5 October 2026 to Sunday 3 January 2027. The steady business, with no new work, brings in £72,000 a week and pays £33,000 a week to suppliers. On top of that sit the fixed dates:

• PAYE and National Insurance: due on the 22nd of each month for electronic payment. Thursday 22 October and Tuesday 22 December are ordinary days. 22 November 2026 is a Sunday. The deadline does not move, but the business pays by Bacs, so its payment goes on Friday 20 November; HMRC's own guidance says a Faster Payment could arrive on the Sunday itself.
• VAT for the quarter to 30 September: return and payment due Saturday 7 November. HMRC states that payment must reach it on or before the deadline even when that falls on a weekend, so the Bacs run goes on Friday 6 November.
• Payroll: Friday 30 October, Monday 30 November and Thursday 31 December, £98,000 net each time, with the £44,000 of PAYE and National Insurance following on the 22nd.
• Rent: quarterly in advance on the traditional quarter days, which the lease sets. The December quarter day is Friday 25 December, a bank holiday, so the payment goes on Thursday 24 December: £21,000.
• Corporation tax for the year to 31 March 2026: due Friday 1 January 2027, nine months and one day after the year end. That is a bank holiday, and HMRC asks for payment by the last working day before unless it is made by Faster Payments, so £38,000 leaves on Thursday 31 December.

Then the contract. On Monday 5 October the business wins six months of work worth £180,000, invoiced monthly in arrears at £30,000 on the last working day of each month, on 30-day terms. Delivering it needs materials and a subcontractor, ordered in the second week and invoiced on 16 October at £45,000, due on Sunday 15 November and paid on Monday 16 November. It also needs one new hire, starting Monday 2 November on £48,000 a year: £2,500 of equipment and onboarding in the first week, net pay of about £3,000 on 30 November and again on 31 December, and about £1,650 of PAYE, National Insurance and pension on the November pay leaving on 22 December. The first contract invoice is raised on Friday 30 October, due on 29 November, and expected, at 40 days, on Wednesday 9 December. The second is raised on 30 November and is not expected inside the quarter at all.

Here is the closing cash at the end of each week, with and without the contract, against the £120,000 floor.

Read the two columns together. Without the contract the business crosses its floor once, in the final week, when payroll and corporation tax land together. With the contract it crosses twice: in the week of 30 November, when the new payroll goes out with the materials already paid and the first contract receipt still nine days away, and again at the year end, £25,000 deeper than before.

Now read the contract on its own. In the quarter it earns £90,000 of revenue and costs roughly £57,000 to deliver, so it is profitable by about £33,000 on the management accounts. In cash it takes in £30,000 and pays out £55,150, so it is £25,150 down. Both statements are true of the same three months. The cash catches up in January and February when the second and third invoices are paid, which is exactly the point: the business funds the contract for a quarter before the contract funds itself, and a second contract won in November would open a second gap on top of the first.

The low point is not on a month end, and a monthly forecast would not show it. On 30 November the month closes at £104,500 and the month-end figure happens to catch it, but the 16 November trough sits mid-month and the 9 December recovery sits mid-month too. Weekly is the resolution at which this pattern is visible.

How To Forecast The Gap Before The Bank Does

The method is the one the example was built with. It rests on a principle ICAEW sets out in its nine principles for finance professionals on cash flow forecasting, published in November 2022: assign expected, worst case and best-case dates for receipts and payments. Everything else is bookkeeping around that sentence.

Step 1: Start from cleared cash and a weekly calendar. Take the reconciled balance across every bank account and entity as the opening position, and lay out the next thirteen weeks. Month columns hide the collisions; weeks show them.

Step 2: Enter the fixed calendar first. Payroll, PAYE and National Insurance, VAT, corporation tax, rent, loan repayments and any annual renewals, each on the date the cash will leave the bank, with weekend and bank-holiday deadlines checked against HMRC's own pages rather than assumed.

Step 3: Place every open invoice on its expected date, not its due date. Use your own payment history by customer. A customer who pays at 40 days is a 40-day receipt whatever the terms say, and the median and the slow tail matter more than the average. Our guide to how payment terms and late payment shape your cash timing covers how to build that history.

Step 4: For each new piece of work, enter the commitments before the ledger has them. The supplier order, the hire's start date and first payday, the equipment, and the tax and pension that follow a month later all go in as dated budgets the week the work is agreed, not when the invoices arrive. Then enter the receipts the work will generate, at the expected date, and check which arrives first.

Step 5: Keep committed and planned work in separate layers. Signed contracts and confirmed hires belong in the base forecast. A contract still in negotiation, or a hire not yet approved, belongs in a scenario that sits on top of the base and can be switched on and off. No professional body prescribes this split; ICAEW's principle that assumptions should be documented with a probability attached points the same way, and it is the rule we use.

Step 6: Set a floor and read the crossing date. Decide the balance below which the business should not go, draw it on the forecast, and read the first date the base case crosses it. That date, and the number of weeks between today and it, is the decision window. In the example above it is the week of 30 November, and the finance team knows that on 5 October.

Step 7: Re-run it every week against actuals. Replace last week's forecast with what cleared, roll the horizon forward a week, and look at what moved. The variances are the education: a receipt that slipped ten days is a customer to call; a payment that landed a week early is a process to fix. Our guide to running a weekly cash review in a finance team of three sets out the meeting around this.

What The Forecast Lets You Change

Seeing the gap in October rather than in the bank statement in December changes what is possible, and the first options cost nothing.

The most direct is to move the receipt. Government guidance is clear that a business can set its own payment terms, including payment upfront. The Small Business Commissioner recommends asking for a deposit and invoicing on the day of completion rather than waiting for month end, and recommends upfront and partial payments for staged and large projects to assist with cash flow. The British Business Bank's advice is to ask for deposits when you take orders. In the example, a 20% deposit on signature, paid at the same 40 days, would have brought £36,000 in by mid-November and kept the 30 November balance above the floor without changing a single cost. Whether the customer will agree is a commercial question; the forecast tells you what it is worth asking for.

The second option is to move the commitment. If the hire can start two weeks later, or the materials can be delivered in two tranches, the outflows move towards the receipt that funds them. The forecast shows whether the change is worth the disruption.

The third is to size the reserve the business holds against exactly this pattern, which is the subject of our guide to how much cash a business should keep in reserve. And financing exists for the gap that remains when the other three are exhausted. It is outside the scope of this page, and it is a poor first resort for a problem that is visible three months ahead.

How Float Fits

Float is the forecast this method runs on. It connects to Xero or QuickBooks Online, syncs once a day at an hour you set, with a manual sync when you need one, and reads your reconciled bank balances, invoices and bills into a cash forecast you can view week by week over 13 weeks or month by month for longer horizons. The connection is one-way: nothing Float does writes back to your ledger.

Each invoice and bill carries an expected payment date you can edit, so a customer who pays at 40 days sits on the forecast at 40 days. For Xero users, Smart Expected Dates can set those dates from your customers' actual payment history. Commitments that are not yet in the ledger, the supplier order, the new hire's costs, the deposit you have asked for, go in as budgets, one-off or repeating, on the date the cash will move. Confirmed hires can be modelled in the People Costs tab and their costs entered as budgets. A contract in negotiation goes in as a scenario, a budget layer that stacks on the base forecast and can be switched on and off or merged into it when the contract signs. A cash threshold line shows the date the forecast crosses it under each scenario. If your business runs more than one entity or bank account, Float consolidates them into one position.

Automatic VAT forecasting is available for Xero users; the example's VAT payment is entered as a dated budget, which works on either platform. Float does not connect to your bank directly and does not send alerts or scheduled reports; the finance team runs the review. Sage Intacct is on the waitlist rather than live. See pricing for plans and entity limits.

Frequently Asked Questions

Why does a growing business run out of cash?

A growing business runs out of cash because it pays for growth before it is paid for it. Staff, materials and suppliers are paid as work is delivered; customers pay on terms, and often later than the terms say. The cash tied up in that gap rises with activity, so a business can grow, stay profitable and still run short. The Insolvency Service and the British Business Bank both describe the pattern in their guidance.

What is overtrading?

Overtrading is ACCA's term for a business with insufficient working capital to support its level of activity. It typically happens to profitable businesses that expand faster than their cash can fund, which is why the Association of Corporate Treasurers describes profitable companies going bust from it. It is a timing and funding problem rather than a margin problem, and the monthly profit and loss does not show it.

How is lumpy cash flow different from seasonal cash flow?

Seasonal cash flow follows the calendar: the same peaks and troughs in the same months each year, which the Office for National Statistics defines as systematic calendar-related variation. Lumpy cash flow is driven by events, such as a contract landing, a hire starting or a large supplier invoice falling due, and does not repeat on a schedule. Seasonal patterns can be planned for a year ahead; lumpy patterns have to be forecast event by event, at weekly resolution.

How much working capital does growth need?

There is no published benchmark for businesses of 11 to 50 people. In the simple case the working capital a business needs rises in proportion to its sales: if receivables run at 45 days of sales, 20% more sales means 20% more cash tied up in receivables, before any change in how quickly customers pay. The only reliable figure is your own, calculated from your own debtor days, stock or work-in-progress days and creditor days, which ACCA and the Association of Corporate Treasurers define in their published formulas.

What is the cash conversion cycle?

The cash conversion cycle is the number of days between paying for the inputs to a sale and receiving the cash from it. ACCA and the Association of Corporate Treasurers calculate it as inventory days plus receivables days minus payables days, with small differences in the denominators used. A longer cycle means more cash tied up per pound of sales, and therefore a bigger cash cost for each step of growth.

Should a cash flow forecast use due dates or expected payment dates?

Expected dates. ICAEW's nine principles for finance professionals on cash flow forecasting say to assign expected, worst case and best-case dates for receipts and payments. A due date is what the contract says; an expected date is what your payment history says, and the two can differ by weeks. Forecasting on due dates overstates cash in the weeks that matter most.

How should a forecast treat a contract that is not yet signed?

No professional body prescribes a rule. The practice we recommend is to keep signed contracts and confirmed hires in the base forecast and put unsigned work in a separate scenario that can be switched on and off. ICAEW's guidance that assumptions should be documented with a probability attached points the same way. The base case then shows the cash you are committed to, and the scenario shows what changes if the deal closes.

Does Float alert me when cash is going to run low?

No. Float shows a cash threshold line on the forecast and the date the balance crosses it under each scenario, but it does not send alerts, notifications or scheduled reports. The finance team reads the forecast in its weekly review and acts on the crossing date. Float also does not connect to your bank directly; it works from the reconciled data in Xero or QuickBooks Online, synced once a day.

Float connects to Xero or QuickBooks Online and gives finance teams a rolling 13-week cash forecast built from their accounting data, synced daily, with scenarios for the work not yet signed. Start a 14-day free trial with no credit card, or see pricing.