- A cash stress test puts a number on the question “what if the collections we expect arrive late?”, using the weekly cash plan.
- The test has three steps: a realistic base plan, reasonable and severe delay scenarios, and identifying the lowest cash point and the week in which it occurs.
- The real output is a list of actions that can be taken before a cash shortfall occurs, with the date by which each must start.
Some weekly cash plans rest on a single scenario: customers pay on time, suppliers are paid on time, credit lines are renewed as planned. In reality, collections can be one of the uncertain lines in a cash plan. A large customer paying a few weeks late can push a plan that looks comfortable on paper into deficit within weeks.
A stress test makes this uncertainty visible in advance.
1. Preparing the base plan
A stress test is built on a reliable base plan. At a minimum, the weekly cash plan should include:
- opening cash and available credit lines,
- expected collections by customer (large customers on separate lines),
- supplier payments,
- payroll, tax and social security payments,
- loan principal and interest payments,
- planned capital expenditure,
- closing cash.
The collections line in the base plan should reflect customers’ actual past payment behaviour, not invoice due dates. Showing a customer who habitually pays late as paying on time makes the plan optimistic before the stress test even starts.
2. Defining the scenarios
Scenarios should rest on observable risks, not arbitrary percentages:
| Scenario | Assumption (example) | Basis |
|---|---|---|
| Base | Customers pay with their historical average delay | Collection data for the last 6–12 months |
| Reasonable delay | The three largest customers pay two weeks later than average | Customer concentration |
| Severe delay | A share of collections slips by four weeks; one customer stops paying | Sector downturn, the company’s worst historical period |
| Combined | Severe delay + one credit line not renewed | Banking relationship risk |
The assumptions and periods in the table are examples. Each company should set them according to its own customer base.
3. Reading the results
For each scenario, answer three questions:
- What is the lowest cash point, and in which week does it occur?
- In which week does cash first fall below the minimum cash buffer? That week marks the limit of the time available to act.
- Can the shortfall be covered by available credit lines?
Hypothetical example
Hypothetical example — not based on a real company.
The company’s minimum cash buffer is TRY 2.0 million and its available credit line is TRY 2.0 million. Scenario summary of the 13-week plan:
| Scenario | Lowest cash (TRY million) | Week | First week below buffer | Credit line |
|---|---|---|---|---|
| Base | 3.2 | 7 | None | Not used |
| Reasonable delay | 0.4 | 7 | Week 6 | Not used; 1.6 below buffer |
| Severe delay | −1.9 | 8 | Week 5 | 1.9 drawn, 0.1 left; cash falls to zero, 2.0 below buffer |
In the reasonable-delay scenario cash stays positive but falls below the buffer from week 6. In the severe scenario the deficit can be covered by the credit line, but almost all of it is used and the buffer is gone entirely, leaving no room to absorb a second setback.
The conclusion is that actions must start before week 5, when cash falls below the buffer in the severe scenario, so by week 4 at the latest.
4. The action list
The value of a stress test lies in setting out actions with clear dates:
- Collections: Talk early to customers with high delay risk, make shipments subject to approval based on overdue balances, and offer payment plans.
- Payments: Identify payments that can be deferred, such as non-critical capital expenditure. Negotiate terms with suppliers before a shortfall occurs.
- Financing: Write credit line renewal dates into the cash plan. If needed, start negotiating additional facilities before the need arises.
- Inventory: Align purchase orders with the cash plan and reduce slow-moving stock.
Each action has an owner and a date. Progress is tracked in the weekly cash meeting.
Common mistakes
- Building scenarios only on a total collection percentage: Risk can be concentrated in a few large customers. Customer-level scenarios are more realistic.
- Modelling a delay as a loss: In a delay, the collection moves to later weeks; in a loss, it never happens. They are separate scenarios.
- Treating credit lines as fully available: Part of a facility may already be used by letters of guarantee or other non-cash utilisation.
- Running the test once: The stress test should be rerun as the weekly plan is updated.
What it means for management
A stress test is not run to produce bad news but to buy time. Management that knows in which week the lowest cash point will occur can talk to banks, customers and suppliers before it is under pressure. The test is a natural extension of the weekly cash plan and of liquidity early warning indicators. How to set up the 13-week plan is explained in detail in the site’s Turkish-language guide “Nakit Akış Analizi: Nakit Akış Tablosunu Okumak ve 13 Haftalık Tahmin” (cash flow analysis and the 13-week forecast).
This article is for general information. Scenario assumptions should be set according to the company’s customer base, sector and financing conditions. Method: This article is professional analysis; it makes no claim that rests on legislation, a provision of a standard or statistics.
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