Annual budget and 13-week cash flow forecast: a method for SMEs

Two tools, two horizons

The budget and the cash flow forecast answer two different questions. The budget states what the company plans to sell, spend and earn over the year, month by month; it serves as the reference for judging what happens. The cash flow forecast states how much money there will be in the bank accounts, and when; it serves to decide in time.

A company can be on budget and still run short of cash in a given week: a major customer pays late, a tax payment falls due at the same time as the payroll, stock was built up too early. The 13-week forecast, which covers a quarter, is designed to see these moments coming. The horizon is short enough for the figures to rest on known items — invoices issued, orders, payroll, tax and bank due dates — and long enough to leave time to act: chase a payment, postpone a purchase, talk to the bank.

Adopting the budget and providing for the unexpected

The budget is prepared before the financial year opens, adopted by management and, where applicable, presented to the shareholders. Each line has an owner, who will explain its variances.

It is useful to accompany it with a cautious scenario — lower sales, slower receipts — to know at what level of activity cash becomes tight, and what would then be done. Take a company whose customers pay on average at 90 days: if that period lengthens by 15 days, the equivalent of 15 days of turnover is missing from the bank accounts.

The review: every week, every month, every quarter

Every week, the column just ended receives the actual amounts, a new week is added at the end of the horizon, and the variances between forecast and actual are noted: the lines that diverge most are those where forecasting effort should be focused. The data come from documents the company already keeps: aged receivables and payables, the order book, the payroll calendar, the loan repayment schedule, the tax calendar.

Every month, after the monthly close, actual figures are compared with the budget. A distinction is made between the volume effect (more or less was sold), the price effect, the timing effect (the sale or the expense has merely slipped by a month) and the exceptional event. The first two change the trajectory of the year; the third evens out, but weighs on the cash position of the moment. The year-end forecast is updated, and the decisions taken are recorded with their owner and their date.

Every quarter, the budget assumptions are revised if activity has departed from them lastingly, and the use of credit facilities is reviewed with the bank.

Payment terms: what Law No. 69-21 lays down

Payment terms between traders are governed by the Commercial Code (Law No. 15-95), as worded by Law No. 69-21 published in the Official Bulletin of 15 June 2023. These rules do not apply to persons whose annual turnover does not exceed MAD 2 million excluding VAT (Art. 78-1).

The terms. In the absence of agreement, the payment term is 60 days from the date the invoice is issued; if agreed, it may not exceed 120 days from that date. The invoice must be issued no later than the last day of the month of delivery or of the service; failing that, the term runs from the end of that month. For periodic transactions not exceeding one month, the terms run from the first day of the following month. A decree issued after consulting the Competition Council may extend the term to up to 180 days in certain sectors (Art. 78-2).

The fine. Any late payment gives rise to a fine payable to the Treasury, calculated on the amount including VAT of each invoice not paid on time: at the Bank Al-Maghrib key rate applicable at the end of the first month of delay, then 0.85% for each additional month or part of a month. It is paid spontaneously, together with the declaration. It is suspended for invoices brought before the court, until a final decision, and the creditor retains its right to compensation for the delay (Art. 78-3). The CGI excludes from deductible expenses fines for breaches of statutory provisions (Art. 11-I); the accountant will confirm the treatment of this one.

The declaration. Companies whose turnover exceeds MAD 2 million excluding VAT file electronically, before the end of the month following each quarter, a declaration accompanied by a detailed statement of the invoices not paid within the terms, even when there are none. The statement is endorsed by the statutory auditor from MAD 50 million of turnover, and below that by a chartered accountant (expert-comptable) or a certified accountant (comptable agréé) (Art. 78-4).

The penalties. Failure to declare or late declaration, like failure to pay or late payment of the fine, costs, according to turnover: MAD 5,000 between MAD 2 million and MAD 10 million, MAD 12,500 between MAD 10 million and MAD 50 million, MAD 50,000 between MAD 50 million and MAD 200 million, MAD 125,000 between MAD 200 million and MAD 500 million, MAD 250,000 above that; an incomplete declaration costs MAD 5,000 per missing or inconsistent invoice (Art. 78-6). An annual list of offenders is sent to the Observatory of Payment Terms (Observatoire des délais de paiement, Art. 78-8).

The phasing-in. The fine and the declaration (Arts. 78-3 to 78-10) applied to invoices issued from 1 July 2023 for companies with turnover above MAD 50 million, from 1 January 2024 for those between MAD 10 million and MAD 50 million, and from 1 January 2025 for those between MAD 2 million and MAD 10 million. For 2024 and 2025, companies with turnover of MAD 50 million or less filed an annual declaration, before 1 April 2025 and then before 1 April 2026 (Law No. 69-21, Art. 2).

In the forecast, the consequence is twofold: supplier payments are scheduled to fall within the terms, and no agreed customer term may exceed 120 days, unless a sectoral decree provides otherwise.