How to forecast project cash flow, with a monthly example

Cost is not cash

A project budget tells you how much the work costs. A cash flow forecast tells you when the money moves. The two differ because of timing:

• Incurred vs paid. You incur a supplier cost when the material is delivered, but you may pay it 30 or 60 days later.
• Earned vs invoiced vs collected. You earn revenue as work is done, invoice it at the end of the month, and collect it after the client's payment terms.
• Advances and retention. An advance payment brings cash in early. Retention (a share of each invoice the client holds back until completion) pushes cash in late.

A project can be profitable on paper and still run out of cash in month three. That is why the cash view matters, especially for contractors, agencies and anyone who pays people before the client pays them.

Steps to build a cash flow forecast

1. Start from the schedule. Cash follows work, so the forecast is only as good as the plan. Use dated activities, not a flat split across months.
2. Spread costs by month incurred. Assign each cost (labour, materials, subcontracts, equipment) to the months the activities run.
3. Shift costs to the month paid. Apply supplier and payroll terms. Payroll is usually paid in the same month; suppliers often a month later.
4. Forecast invoices. Use the contract's billing rule: monthly progress claims, milestone payments or a fixed schedule.
5. Shift invoices to the month collected. Apply payment terms, deduct retention and add any advance (and its later recovery).
6. Net and accumulate. Net cash flow = cash in − cash out for each month. Add them up to get the cumulative balance.
7. Read the result. Find the peak funding need and the break-even month, then decide how to fund the gap: working capital, an advance, better terms or a re-sequenced plan.

Monthly example: a six-month project

A contractor runs a six-month project. Contract value is $280,000 and cost is $240,000, so the margin is $40,000. The client is invoiced monthly for work done, pays one month after each invoice and holds back 5% retention, released one month after completion. The cash out column already reflects when the contractor pays its staff and suppliers.

Month	Invoiced	Cash in	Cash out	Net	Cumulative
1	$25,000	$0	$20,000	−$20,000	−$20,000
2	$50,000	$23,750	$45,000	−$21,250	−$41,250
3	$70,000	$47,500	$60,000	−$12,500	−$53,750
4	$70,000	$66,500	$60,000	$6,500	−$47,250
5	$45,000	$66,500	$40,000	$26,500	−$20,750
6	$20,000	$42,750	$15,000	$27,750	$7,000
7		$19,000	$0	$19,000	$26,000
8		$14,000	$0	$14,000	$40,000
Total	$280,000	$280,000	$240,000	$40,000

How the cash in column works: each month the client pays the previous month's invoice less 5%. Month 2 receives 0.95 × $25,000 = $23,750; month 3 receives 0.95 × $50,000 = $47,500, and so on. The retention is 0.05 × $280,000 = $14,000, paid in month 8.

What it tells you:

• Peak funding need is $53,750, at the end of month 3. The contractor must finance that much before the project pays for itself.
• Break-even is month 6, when the cumulative balance first turns positive ($7,000).
• The final cumulative of $40,000 equals contract value minus cost ($280,000 − $240,000), which confirms the table adds up.

Now test a change. If the client agreed to a 10% advance ($28,000) in month 1, recovered from later invoices, the low point would rise sharply. That is often worth more than a small price concession.

Keeping the forecast current

A cash flow forecast is a living document. Each month, replace the forecast for the month just closed with actual receipts and payments, then re-spread the remaining work from the updated schedule. If the schedule slips, cash in slips with it, while some costs (site overheads, salaried staff) keep running. A two-month delay therefore usually deepens the funding gap, not just moves it.

Comparing the cost side with earned value helps here. If CPI is below 1, future cash out will be higher than planned; if SPI is below 1, invoices and receipts will arrive later. The earned value calculator gives both indices from three numbers.

Run at least two scenarios beside the base case. In a late-payment case, move every receipt one month later and see how far the low point drops. In a delay case, stretch the remaining work by the schedule slip you consider plausible and keep fixed monthly costs running. If the funding need in either case exceeds what you can finance, act now: negotiate an advance, shorten payment terms, or re-sequence costly work.

Common mistakes

• Using the budget spread as the cash forecast. It ignores payment terms and retention, which are exactly what create the gap.
• Spreading costs evenly. Real projects ramp up and down. A flat split hides the peak.
• Assuming clients pay on time. Use the terms you actually experience, and test a late-payment case.
• Forgetting retention and its release conditions. Retention often depends on a completion certificate, which can itself be late.
• Never updating. A forecast built at kickoff and never touched is a guess with a date on it.

How to do this in Critova

Critova covers the cost side of this forecast. You record cost entries by hand or from a spreadsheet against a project with a dated, critical path schedule, and the earned value view shows CPI, SPI and the EAC family with their formulas, so you can see whether future spend and progress are drifting from plan. Critova does not handle invoices, payment terms, retention or client receipts, and it has no accounting connector yet. For the cash in side, export the cost register to Excel and build the receipts columns in a spreadsheet using the steps above; an accounting system is the better home for actual receipts. See cost control in Critova.