FIN.2:4 - Solution

1. Choose the paying entity, currencies, payment dates and minimum usable cash required at each date. Include the whole baseline of other receipts and payments. Use daily or intraday intervals around tight dates, even when the remaining horizon is monthly.
2. Reconcile opening bank and cash balances to the usable amount: remove restricted, pledged, trapped or unsettled amounts as the actual arrangements require. Identify an intercompany transfer by its source, permitted route, cost and earliest usable time; common ownership alone supplies none of these.
3. Place material operating payments, collections, taxes, debt service, investments and distributions on the timeline. Distinguish agreed dates from expectations. Keep alternative collection or draw assumptions as scenarios; do not add a hoped-for receipt to a committed one.
4. For each facility, establish the remaining commitment, borrower, currency, expiry, draw conditions, notice period, cutoff, collateral and fees. Count a draw as available only on the scenario whose conditions support it. A revocable indicative line contributes a possible funding alternative, not current cash.
5. Calculate each closing balance as opening usable cash plus usable inflows minus payments. For a required reserve, funding need at a date is the positive amount by which the pre-funding balance falls below that reserve. Solve for the gross draw when fees are withheld; include later interest and repayment.
6. Recalculate the whole timeline with the proposed response. A draw that cures today’s gap can create a larger maturity gap. Return the amounts, dates, conditions and affected commitments. Use FIN.3 for working-capital alternatives, FIN.10 for financing terms, or FIN.15 for a selected permitted treasury action.

Stop when the receiving decision can distinguish a funded path from its unresolved conditions. If the right to money or the contract’s event behavior is unclear, obtain that specific account through FDM.1–3. If profit and cash disagree materially, use FIN.4 and the applicable MA.4 reconciliation.

If you can perform a calculation but cannot explain how it answers this liquidity question, use B.1.5.EW to recover the connection. Identify the financial operation being performed through it, the conditions that make it fit the payment plan, and any constituent know-how or contribution still needed. The example below shows that relation.

Build the account around the payer and the payment

A liquidity forecast answers whether a particular payer can make particular payments when they become due. Start with the bank and settlement accounts that payer can use. An amount in the accounting cash balance can be pending clearance, pledged, reserved by contract or held by a different company. Record the condition and earliest usable date before treating it as a source. Conversely, an undrawn facility is a possible financing action, not opening cash. Adding its limit to the bank balance and then also adding a draw counts the same support twice.

Use the currency in which the obligation must be settled. If another currency supplies the money, include the conversion transaction, obtainable rate or rate scenario, settlement date and any margin or transfer requirement. A common reporting currency helps compare positions but does not perform that conversion. For a group, first establish the separate payers’ accounts and the actual transfers that connect them. A consolidated surplus can coexist with a subsidiary’s inability to pay. FDM.1–2 supplies the positions, entity boundary and available support; FIN.2 turns those results into dated funding consequences.

The starting cash is an observed or reconciled usable balance at a stated instant. Construct receipts from invoices, customer terms, expected performance and asset realizations; construct payments from the operating plan, supplier terms, payroll, tax, investment and existing finance. FIN.4 and MA.4 supply the connection to the forecast and accounting views. A sale is not yet a receipt, a purchase is not necessarily paid on delivery, and depreciation is not a payment. When a forecast already starts from operating cash after tax or interest, do not subtract those same payments again.

Separate obligations, expected performance and selectable actions. A receivable due on Tuesday establishes a claim; its collection forecast requires evidence about payment. A proposed loan becomes cash only after its conditions, notice and settlement are satisfied. FDM.3 develops this event logic when the arrangement is unclear. A supplied schedule with these distinctions already resolved can be used directly.

Choose dates that reveal the decision

Near a threatened payment, use event dates or intervals short enough to expose the lowest balance. A weekly total can hide Monday payroll followed by Friday collections. Include intraday order when a bank cutoff, security settlement or same-day receipt changes whether the payment can occur. A longer operating forecast may use monthly periods, but its aggregated cash cannot settle that shorter question.

Carry the horizon through the proposed remedy’s repayments and the operating cycle it finances. A draw can remove this week’s shortfall while creating a larger maturity next month. If the decision concerns continuing availability, also inspect the next seasonal low, renewal date and material collateral reset. Do not extend every small payment query into an indefinite corporate model: stop once the relevant obligation and its material financing consequences are covered, and identify any later dependence.

For each scenario and date, begin with the previous closing balance, add usable receipts and actual financing proceeds, and subtract all payments, financing charges and repayments. Compare the resulting balance with the applicable minimum reserve. The reserve is a requirement or a chosen protection level; keeping it separate from the balance lets a reader distinguish inability to pay from an intended safety margin being consumed. If a model allows a negative balance, that row describes an unmet need unless an actual overdraft arrangement supplies it.

Derive availability and the gross funding need together

A credit limit is only one constraint on drawing. The available amount may also depend on eligible receivables or inventory, collateral valuations, prior drawings, other uses of the facility and conditions in FIN.12. For a simple asset-backed line, a stipulated rule might permit total drawings up to the smaller of the commitment and a percentage of eligible receivables. Incremental room is that amount less existing drawings and other reserved utilization. Read the actual agreement before using such a formula; not every line has a borrowing base.

A decline in receivable quality can simultaneously delay collections and reduce the line that was expected to bridge them. Therefore project availability in the same adverse state as the cash shortfall. Holding yesterday’s line headroom fixed while stressing receipts breaks the proposed protection. A breach may also affect renewal or draw permission before it changes a contractual maturity.

Size a financing action from its net usable proceeds. If a fixed fee is withheld, add that fee to the cash need before solving for the principal. If a percentage is withheld, divide the required net amount by one minus that percentage. A restricted deposit or compensating balance can absorb further proceeds; its later release belongs at its own date. FIN.10 compares the obtainable instruments and their full costs. Return its selected terms here, then recompute the account including interest and repayment. Continue until the chosen borrowing and the cash account agree; an algebraic solution alone does not establish a lender willing to supply it.

Set protection from a plausible failure and a timely response

A reserve should answer a concrete exposure: uncertain collections, urgent repairs, margin calls or the time needed to obtain replacement funds. For each relevant adverse state, ask how far the balance can fall before a feasible response takes effect. The required initial protection is the largest shortfall relative to the chosen minimum over those dates, after allowing only responses available in that state. This is a scenario requirement, not a statistical confidence level unless the scenario model supports that interpretation.

Avoid treating all uncertainties as independent when they arise from the same cause. A customer’s failure can remove a receipt, reduce collateral eligibility and make a financier less willing to extend credit. Equally, adding every imaginable worst outcome can immobilize money without improving the present decision. Select material states from the operating and financing exposures, explain the protection sought, and show the remaining exposure when a full guarantee is unattainable. A sufficiently supported probability model can estimate shortfall likelihood and magnitude; an average balance still does not prove payment capacity.

Compare the cost of holding or arranging protection with the consequences it prevents. Cash holdings may earn a return but have opportunity cost; committed facilities can charge for unused capacity and still contain conditions. Selling assets quickly may realize less than their ordinary value. These costs belong to the choice of protection, while the dated account establishes whether it works. FIN.5–6 supplies the value comparison when material; no general rule makes maximum cash retention desirable.

Change the attainable plan and keep the return visible

If the account fails, construct a remedy that changes a dated receipt, payment or available financing action. Accelerating a customer payment has a price and requires acceptance. Extending a supplier term changes an obligation only when the arrangement permits it. Reducing inventory may undermine delivery and hence later receipts. FIN.3 compares these operating terms; FIN.10 compares finance; FIN.12 identifies restrictions and remedies. Return their actual consequences to the same account before relying on the repair.

Include the decision’s execution lead time. An asset sale closing after payroll is not a payroll remedy. A loan with enough face amount but an unsatisfied condition is not yet one either. When no attainable plan covers the obligation, state the uncovered date and amount and the action-changing missing condition; FIN.22 becomes relevant if ordinary adjustment is insufficient. A request for consent is not itself consent.

Roll the forecast forward using actual receipts and payments. Explain material deviations as timing, amount, scope or failed action, then revise the remaining account and response. Do not erase the original reason for a borrowing need by relabeling an overdue receipt as collected. For a genuine temporary surplus, preserve access before the next required use: compare maturity, settlement, credit risk and redemption conditions of any proposed placement. The gross bank balance is not automatically available for investment or payout.