Working Capital and 13-Week Cash

A 13-week forecast is really a schedule of timing, and the timing has a cause. Working-capital theory, as laid out in Brealey, Myers, and Allen's Principles of Corporate Finance, describes the cash conversion cycle: the stretch of time between paying your suppliers and collecting from your customers. In the usual form it is days sales outstanding plus days inventory outstanding, less days payable outstanding. The longer that cycle, the longer cash sits tied up in receivables and inventory before it comes back.

That is why a business can be profitable on paper and still run tight on cash: a working-capital swing can move near-term liquidity more than a quarter of reported earnings does. Brealey, Myers, and Allen make the same point through the cash budget, where each period's ending cash follows from beginning cash plus receipts minus disbursements. The 13-week forecast is that cash budget at weekly resolution. It does not restate profit; it schedules when cash actually lands and when it leaves.

The timing is not guessed; it is read off two schedules. The AR aging buckets receivables by how overdue each balance is (current, 1 to 30 days, 31 to 60, and so on), and it is the evidence base for collection timing: you estimate when each bucket turns into cash from how that customer base has historically paid, not from hope. The AP aging buckets payables by how soon each is due, and together with known dated items such as payroll runs, tax payments, and debt service, it schedules what leaves the account and when. A disciplined forecast, in the restructuring tradition, counts only the receipts the aging can support and dates each disbursement to when it truly comes due.

These schedules chain together. Each week's ending cash equals the prior week's ending cash, plus the collections read off the AR aging, minus the disbursements read off the AP aging and the dated items. That arithmetic has one right answer for a given set of inputs. So a forecast is not decision-ready because it looks finished; it is decision-ready when it is validated, which here means three things. The weekly chain ties, so each week follows from the prior week and the flows. The trough week is correctly identified as the true low point across the 13 weeks. And the minimum cash, the lowest balance the forecast reaches, is a figure the treasury team would stand behind. Validation comes before scenarios, because a scenario is just the base with a few inputs changed, and a stress test on a base that does not tie tends to be confidently wrong.