The cheap money era is over. With borrowing costs likely to remain elevated through 2026, cashflow forecasting has transformed from a nice-to-have reporting exercise into a critical business survival tool.
As of summer 2025, the Bank of England base rate sits at 4.5%, and market consensus suggests it won’t drop below 4% until late 2026. Most economists expect rates to hover between 4% and 4.5% throughout 2025. This isn’t a temporary blip – it’s the new normal.
Higher interest rates alter the way businesses manage their cash. What used to be minor timing issues now carry real financial consequences. A temporary overdraft that barely registered at 0.5% base rate now costs serious money at 4.5%. Late payments aren’t just annoying – they’re expensive.
Accurate forecasting and proactive cash management are essential for both survival and growth.
Borrowing isn’t what it used to be
When borrowing was cheap, businesses could afford to be relaxed about cashflow timing surrounding debts and loans. Today, the same debt facilities cost more than double, and the cumulative impact adds up quickly.
This comes as the OBR cut UK growth forecasts to just 1% for 2025, creating pressure on working capital across all sectors. Companies are holding onto cash longer, stretching payment terms, and being more selective about which suppliers they pay first.
There is one surefire method that helps businesses deal with these issues: real-time visibility and scenario planning that can adapt quickly to changing conditions.
The modern forecasting toolkit
Gone are the days when a monthly spreadsheet or napkin forecast would suffice. Today’s successful businesses utilise integrated platforms that directly connect to their accounting systems and bank feeds.
High-quality yet intuitive automated tools reduce errors and provide the real-time visibility essential in a higher-rate environment. Let’s take a look at the key options:
Float
Float leads the pack for Xero users, though it’s not owned by Xero itself – it’s an independent app that integrates seamlessly through the Xero App Store.
Float pulls invoices and bills automatically from your accounting system, creating visual forecasts that show how different payment scenarios affect your cash position.
The ability to model “what-if” scenarios becomes crucial when borrowing costs are material. Users consistently praise its intuitive setup – many report having their first forecast running within two hours.
Sage’s Futrli
Sage’s Futrli offers a comprehensive solution for businesses already in the Sage ecosystem. It provides three-way forecasting that shows how profit affects cashflow and future business value, plus HR forecasting to help time staff hires properly. The integration with Sage Accounting is seamless, and it includes performance insights that go beyond basic cashflow projections.
For businesses using Sage 50 or Sage 200, the built-in cashflow tools offer basic forecasting functionality. While not as sophisticated as dedicated tools, they handle short-term projections well and integrate directly with your existing Sage data.
Similarly, Xero’s native tools provide basic cashflow visibility, but most businesses find them limited for serious forecasting work. They’re fine for simple projections but lack the scenario planning and detailed analysis capabilities that higher interest rates demand.
The key differentiator in all these tools is their ability to handle uncertainty. They let you model different scenarios quickly, test the impact of various assumptions, and update forecasts as conditions change.
Building resilient scenario models
The most important skill in today’s environment is scenario planning. Rather than creating a single forecast, successful businesses now model multiple potential futures and prepare for each.
Your base case should reflect current trading conditions and known contract terms. But equally important are your stress scenarios. What happens if a major customer delays payment by 60 days? How does your cash position look if interest rates climb to 5.5%? What if that key supplier demands upfront payment?
You can also model upside scenarios. What if you can negotiate better payment terms with customers? How much working capital would faster collection processes free up? Modelling positive scenarios often reveals opportunities that offset some of the pressure from higher borrowing costs.
The key is making these scenarios actionable. Each one should come with specific triggers and response plans. This turns forecasting from a backwards-looking reporting exercise into a forward-looking management tool.
Practical steps for tighter cashflow management
Start with payment terms. In a higher-rate environment, every day matters.
Review your customer terms and consider incentives for early payment. Even a 1% early payment discount can make sense when avoiding borrowing costs above 4%.
Negotiate longer terms where possible, but be strategic about which relationships to prioritise. Consider supply chain finance arrangements that can extend payment terms without damaging supplier relationships.
Technology can help automate many of these processes:
- Automated invoicing reduces delays in getting invoices out
- Payment reminders keep receivables moving without manual intervention
- Bank feeds provide real-time cash position updates
- Integration with accounting systems eliminates double-entry and reduces errors
Once your cashflow models are operational, monitor your metrics closely. Days’ sales outstanding, payment pattern analysis, and cash conversion cycles all become more important when the cost of working capital rises. Weekly reviews of these KPIs help spot problems before they become expensive.
Working capital optimisation strategies
Higher interest rates make working capital efficiency more critical to maintain than ever. Look for opportunities to reduce the cash tied up in your business without affecting operations.
First off, inventory management takes on new importance – especially for retailers and manufacturers. Carrying excess stock becomes expensive when financing costs are material.
There are a few modern financial instruments designed to assist cashflow, though they ought to be used with caution. Consider factoring or invoice finance arrangements to maintain a positive cashflow when you need it most.
While these facilities cost money, they can be more cost-effective than overdrafts when properly structured. The key is understanding the true cost and comparing it to your borrowing alternatives.
When professional help pays for itself
Many businesses find that bringing in fractional finance director (fractional FD) expertise makes financial sense in this environment. The cost of getting cashflow forecasting wrong has increased substantially, making professional oversight valuable.
A good virtual FD service combines forecasting expertise with practical implementation support. They can help you select the right technology, set up proper processes, and provide ongoing oversight to ensure your forecasts remain accurate and actionable.
Look for services that understand the specific challenges of your sector. Payment patterns, seasonal variations, and working capital requirements vary considerably between industries.
Generic advice rarely captures the nuances that matter most to your business.
Looking ahead
Interest rates are likely to remain elevated for the foreseeable future. Businesses that adapt quickly will gain competitive advantages. Better forecasting leads to superior working capital management, which translates into lower financing costs and stronger cash positions. These advantages compound over time.
The tools and techniques that work in this environment are different from those that succeeded in the low-rate era. Embracing these changes rather than waiting for rates to fall gives you the best chance of thriving in the new normal.
At Wells Associates, we help businesses adapt their cashflow forecasting to today’s interest rate environment. Our virtual FD service combines cutting-edge forecasting tools with practical implementation expertise, ensuring you spot cash pinch points before they become expensive problems. Contact us to discuss how we can help strengthen your cashflow management for the challenges ahead.