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Liquidity Forecasting
Creating Financial Clarity by implementing a Liquidity Forecasting Report in Odoo

Ever wonder how important it is for businesses to know exactly how much cash they have on hand? Well, that's where we are preparing a Liquidity Forecasting tool in the  Odoo ERP system. Let's dig into more about what should we expect from such tool.

A liquidity forecasting tool is essential for a company because it provides a clear picture of its future cash flow. Here's why it's important:

  • Cash Management: Just like you budget your personal expenses, a company needs to manage its cash effectively. The forecasting tool helps in understanding when money is coming in and when it's going out, ensuring there's enough cash to cover bills and operational needs.

  • Avoiding Cash Shortages: Without a forecasting tool, a company might unexpectedly run out of cash to pay suppliers, employees, or cover other crucial expenses. This could lead to financial stress or even insolvency.

  • Strategic Planning: Knowing your cash flow in advance allows for better decision-making. For example, it helps in planning investments, expansion, or taking advantage of opportunities when there's surplus cash.

  • Debt Management: If a company has loans or debt, the tool helps in planning repayments. It ensures that the company doesn't miss payments, which could harm its credit rating.

  • Emergency Preparedness: In times of economic downturns or unexpected crises (like the COVID-19 pandemic), a liquidity forecasting tool helps in quickly assessing how much financial cushion the company has to weather the storm.

A liquidity forecasting tool is like a financial GPS that keeps a company on track, preventing cash shortages and enabling smart financial decisions. It's crucial for maintaining stability and ensuring the company can seize opportunities for growth.

In our Firakotra Business Game we manufacture and sell textile-based accessories. The fabrics purchasing lead time is significant and we need to build a certain stock buffer in order to cover for the expected sales. How will the purchasing affect to our cash flow position? Will we be able to honor the aggreed payment terms with our vendors?

When creating a Cash Flow Liquidity Forecast, it's crucial to base predictions on realistic assumptions and data. Regularly updating and revising the forecast as actual data becomes available is also essential, ensuring its relevance and accuracy.

The Liquidity Forecasting Report in Odoo will need to feed from the following data sources:

Sales and Accounts Receivable:

  • Sales Orders and Invoices: The system tracks all sales orders and invoices. It knows when invoices are due. Based on this it can predict cash inflows based on payment terms. But customers often delay their payments, and this would result in an unrealistic liquidity forecast! In the future we would like to use historical payment behavior of clients to predict potential delays and improve the accuracy of the forecast.

Purchases and Accounts Payable:

  • Purchase Orders and Bills: The system keeps track of all purchase orders and incoming bills from suppliers. Based on due dates and terms, it can forecast when cash outflows will occur.


Salary and Wages: If you have entered information about salaries and wages, and their due dates in the format of journal entries, they will be used by the liquidity forecasting report.

Expense Management:

  • Expenses: Any expense entered by employees that need to reimburing by the company will be considered as well.

  • Recurring Expenses: Regular business expenses, such as rent, utilities, and subscriptions, can be input into the system, enabling it to predict monthly or quarterly outflows.

  • Ad-hoc Expenses: For one-time or variable expenses, the system can forecast based on entered estimates, called Liquidity Forecast Planning Items.

        Inventory Management:

        • Reorder Points: If the system is set up to reorder inventory automatically when it drops below a certain point, it could predict cash outflows associated with these purchases. We will need to understand what would be the expected sales for the upcoming period, to then estimate the subsequent reordering requests and use this information to predict purchases and cash outflows.

        Loan and Finance Management:

        For businesses with loans, they will certainly benefit from the Loan Management app. We can then can track repayment schedules and forecast cash outflows related to principal and interest payments.

        Manual Planning:

        Where the ERP system cannot by itself predict the cash flow for a certain event, you can create Liquidity Forecast Planning Items that allow you to enter the expected inbound or outbound cash flow for a certain event, indicate the date when you would expect the transaction to happen. In case that you expect that an actual transaction will be entered in the future, and you don't want to double count the cash in/out, it is important to also indicate the expiry date of the Item.

        Register to our Firakotra Business Game in order to test the Liquidity Forecasting Report.


        ForgeFlow fully embraces the Demand Driven Adaptive Enterprise Model
        Jordi Ballester Alomar, DDP Instructor