What to do when a cash gap is coming

The gap is already visible: what to do first

The first urge is to cut every expense at once. Do not rush. First you need three things:

• when exactly the money runs out: a specific date, not “some time in January”;
• how much is missing: the exact amount;
• how long the shortfall lasts: until which receipt.

The example is a designer with a card and a savings account. On the 1st, 70,000 ₽ goes on living costs, on the 5th, 55,000 ₽ on the mortgage, on the 10th, 120,000 ₽ arrives from a regular client, and on the 26th, 50,000 ₽ is put aside to savings. A second client pays 180,000 ₽ once a quarter, in October and January.

In December the second client pays nothing, yet 50,000 ₽ still goes to savings on 26 December. On 1 January 35,000 ₽ is left on the card, and on 5 January 55,000 ₽ is due.

So the gap is 5 January, 20,000 ₽, five days : on 10 January the money from the client arrives. Which solution fits depends on these three numbers.

Check that the gap is real

A forecast is only as accurate as the data in it. Before changing anything, check:

• whether payments and receipts sit on the right dates: the mortgage really is due on the 5th, not the 15th;
• whether some income arriving before the gap has been forgotten;
• whether the forecast still has an expense that will no longer happen;
• whether one payment has been counted twice.

Look at the balance day by day, not at the monthly total. In the example January ends positive, and the total does not show the gap at all.

Option 1: move an expense

The cheapest way is to shift a payment that can be shifted: a purchase, a transfer to savings, an optional payment.

In the example this is the 26 December transfer to savings. Move it to 26 January and 100,000 ₽ goes in January instead of 50,000 ₽, while 30,000 ₽ is left on the card on 5 January.

In the example the savings account earns no interest, so by the end of March the totals match: the same 450,000 ₽ in savings and 570,000 ₽ in total.

In real life this solution has a price: 50,000 ₽ reaches the savings account a month later and misses a month of interest. At, say, 12% a year that is about 500 ₽. That is what you pay for not having a gap.

It is usually small, but worth seeing. In Cashflow interest on savings is set up as a separate transfer with a rate, and the lost amount shows up when you compare flows.

Option 2: get the money earlier

The second route is to speed up a receipt: ask a client to pay earlier, take an advance, split a payment into parts.

If the regular client pays for January on the 3rd instead of the 10th, the card holds 100,000 ₽ on 5 January instead of a minus. The rest of the forecast stays the same.

The limitation is obvious: this does not depend on you. Not every client will agree, and a salary or deposit interest cannot be moved. So keep this option in the plan as one of several, not as the only support.

Option 3: spend less

You can spend less. But there is no need to economise on everything: covering the specific amount is enough.

If you spend 45,000 ₽ on living costs on 1 January instead of 70,000 ₽, 5,000 ₽ is left on the card on 5 January. There is no gap, but the margin is minimal: one extra expense and the payment fails again.

On the other hand, there is more money by the end of March: 595,000 ₽ instead of 570,000 ₽. What you saved stays with you.

Option 4: use your own reserve

Often there is enough money, it is just on the wrong account. In the example the savings account holds 550,000 ₽ by January; only the card is short.

Move 30,000 ₽ from savings to the card on 4 January and 10,000 ₽ is left on 5 January. By the end of March the card holds 150,000 ₽ and savings 420,000 ₽: the same 570,000 ₽ in total.

“There is no money” and “there is no money on the right account right now” are different situations. In the second, the gap is closed by a transfer between your own accounts, without borrowing or cutting spending.

Option 5: borrow

If there is no money of your own, what remains is to borrow: from people you know, from a bank, as a short-term loan.

A loan does not close the gap, it moves it. So decide straight away when and from which money you will repay it, and put the repayment into the forecast.

In the example: 30,000 ₽ borrowed on 4 January and repaid on 20 January, after the client has paid. On 5 January the card holds 10,000 ₽, after the repayment 100,000 ₽. With no interest the March total is the same 570,000 ₽. With interest it shrinks by the interest amount, and that has to be planned for too.

How to choose a solution

Solutions are best compared side by side, on the same numbers:

Look not only at whether the minus is gone but at the balance after it. 5,000 ₽ on the card formally closes the gap, but leaves no room for error.

An order that usually works: first move what can be moved, then agree on an earlier payment, then take from your own reserve, and only then borrow.

In Cashflow each solution is built as a separate flow, and the flows can be compared with each other. The gap is marked automatically, so you see straight away which solution closes it.

To test your own options, you can calculate your own case in Cashflow.

If the gap comes back every month

If the minus shows up in the forecast again and again, it is no longer an accident but a property of the plan. Moving one payment will not help: a month later it all repeats.

Most often the cause is the dates: a large payment falls before the income arrives. Then the structure itself is changed: move the date of a regular payment if that is possible, change the size of the monthly transfer, or keep a permanent margin on the card.

More on this in the guide on how to build a model of your money from scratch.

How to avoid gaps from now on

• look at the forecast regularly, not when a payment has already been declined;
• add one-off payments to it: insurance, a holiday, taxes;
• look at the balance by day, not at the monthly average;
• keep a margin on the account you pay from, at least enough for one large payment.

Why a gap appears even when there is a profit is covered in the article on how to see a cash gap in advance.

A gap you can see in advance is not a problem but a warning. While there is time before it, you have a choice.

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