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Forecast AR, AP, Unearned Revenue, Prepayments & Cash

Use timing profiles to forecast working capital accounts

Updated over 3 weeks ago

This feature is included with Fathom Pro - the plan with access to all of Fathom's features. Companies on Portfolio can be upgraded to Fathom Pro at any time.

How timing profiles forecast the Balance Sheet

In Fathom, most Balance Sheet movements are forecasted from the Profit & Loss through timing profiles.

Timing profiles decide when and how much of a Profit & Loss value is allocated to Cash, Accounts Receivable, Accounts Payable, Deferred or Unearned Revenue, or Prepaid Expenses.

Example: A restaurant collects all revenue immediately from its patrons. A timing profile set to 100% of the revenue collected in the same month would indicate that 100% of the revenue should be deposited into the selected Cash account on the Balance Sheet in the same month it is recorded on the Profit & Loss.

Timing profiles enable you to make changes to Profit & Loss figures and immediately see the impact on the Balance Sheet without needing to create or redo several journals.

See how a timing profile works

You can see exactly how a timing profile forecasts the Balance Sheet by viewing the timing profile preview.

The preview will show you the:

  • Balance Sheet accounts impacted by a Profit & Loss account

  • The amounts expected to hit those Balance Sheet accounts

  • When those amounts are expected to hit those Balance Sheet accounts

Access the timing profile preview

To see the timing profile preview:

  1. Go to the Profit & Loss in the forecast.
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  2. Click on a cell for the Profit & Loss account you want to investigate.
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    1. If you’ve already forecast beyond the baseline, you’ll need to select a baseline or microforecast cell.
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  3. In the menu that opens on the right, scroll down to the second white box to view the timing profile on the account.
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  4. Click the Three dots icon in the timing profile box.
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  5. Select Preview cash timing impact.

If there is a consumption or sales tax at play on the Profit & Loss account, then the amounts going toward sales tax liability will also be recorded if you have configured your Tax Settings.
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💡Smart Tip: To see how the value for a Balance Sheet account was calculated, you can also view the 'Balance Sheet layer detail'.

Choose the impacted Balance Sheet accounts

Unless otherwise specified, the Profit & Loss amounts will hit the default Balance Sheet accounts set in the Forecast Settings.

You can change the Balance Sheet accounts impacted by an individual Profit & Loss account.

Example: A business pays the majority of expenses out of its 'Checking 1' account, but its 'Software Expenses' are paid from the 'Checking 2' account. For the 'Software Expenses' account, the account linkages are set up so the expense is paid from the 'Checking 2' account.

To change the account linkages for a Profit & Loss account:

  1. Go to the Profit & Loss in the forecast.
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  2. Click on the account name.
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  3. In the menu that opens on the right, select Settings.
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  4. Use the drop-down menus to choose one account for each account linkage.

You can choose a Balance Sheet account for each of the linkages:

Account Linkage

Type of account you might select...

Pre-payments

  • Unearned or Deferred Revenue (For Revenue accounts)

  • Prepaid Expenses (For COS or Expense accounts)

Accrued Payments

  • Accounts Receivable (For Revenue accounts)

  • Accounts Payable (For COS or Expense accounts)

Cash / final posting

  • The final account that the Revenue hits or the Expense is paid from. Some possible accounts include:

    • Cash account

    • Inventory account

📝 Note: Funds originally diverted to the selected Pre-payments and/or Accrued Payments accounts will eventually end up in this Balance Sheet account.

In the settings, a chain icon is displayed next to each account linkage type.

If the chain icon is broken, the timing profile is set so the selected Balance Sheet account will not be impacted by the Profit & Loss. If the chain icon is intact, the selected Balance Sheet account will be impacted by the Profit & Loss values.

📝 Note: Want to forecast inventory? See our Forecast Inventory article.

What is the payment cadence?

Timing profiles can be set according to the following timing types:

Timing Type

When it might be used...

Monthly

An art gallery and print shop offers extended payment options for some of its more expensive pieces. On average, approximately 90% of the Revenue from sales is received immediately from customers, while about 10% is paid over the next two months.
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A monthly timing profile can be set so 90% of the Revenue is received as Cash in the same month it is recorded on the Profit & Loss, while 7% is received the next month, and the remaining 3% the following month.

Bi-monthly

(every two months)

A company pays the city for rubbish or garbage collection every two months.

A bi-monthly timing profile can be set so the Profit & Loss expense for the two months is paid all at once.
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Quarterly

A company pays its accountant for services once every quarter and recognises that expense on the Profit & Loss over all three months of the quarter.

A quarterly timing profile can be set so the Profit & Loss expense for 3 months is paid all at once.

Bi-annually

(every 6 months)

A landscaping company receives payments from its larger customers for 6 months of work at a time.

A bi-annual timing profile can be set so the entire Revenue amount for the 6 months of work is received in one payment.

Annually

A company makes a one-time payment to use a software for an entire year.

An annual timing profile can be set so the Profit & Loss expense for the 12 months is paid all at once.

When you start a forecast with the Quick Start option, all timing profiles are set to a monthly cadence with 100% received/paid in the same month.

This means that all Revenue is forecasted to be received as Cash in the same month the Revenue is recorded, and all Expenses are paid in Cash the same month they’re recorded on the Profit & Loss.

You can easily change this by editing the existing timing profiles or applying new ones.

Set or edit a timing profile

Timing profiles can be set at the classification, heading, or individual account level on the Profit & Loss.

Example: A business pays most of its Office Expenses the same month they’re recorded on the Profit & Loss. They set a timing profile on the ‘Office Expenses’ heading in their Chart of Accounts for 100% of the expenses to be paid in the same month.

However, they have a deal with a cleaning company that offers a discount if they pay for three months of cleaning services at once. On the individual ‘Cleaning services’ account, they set a quarterly timing profile to reflect these payment terms.

To set up timing profiles quickly, you can apply one timing profile to a classification that the majority of accounts will use. Then, for any outlier accounts, override the classification's timing profile by creating a new profile for that account or heading.

📝 Note: When you set a timing profile for a heading, the profile will be applied to all accounts underneath that heading. The profile will not be applied to the heading itself.

How to create or edit timing profiles

To set a new or edit an existing timing profile:

  1. Go to the Profit & Loss in the forecast.
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  2. Click on a cell of the account, heading, or classification for which you want to change the timing profile.
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    1. The cell you click on will be the month in which the timing profile starts.
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  3. In the menu that opens on the right, scroll down to the second white box that lists the timing profile in use.
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  4. Click the Three dots icon at the top of the timing profile box.
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  5. Choose New profile or Edit existing profile.
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    1. Ensure you’re choosing the correct option for the account(s) and period(s) you want to change.
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  6. Use the Cash Timing Type dropdown menu to select the timing profile cadence.
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    1. For a monthly profile:
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      1. Type in the percentage of the Revenue/COS/Expense received or paid as Cash in each month.
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      2. Use the + icon to add additional months.
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      3. Use the Three dots icon to add prior months.
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      4. Remove months with the Bin icon.
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    2. For any other timing type:
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      1. Use the second drop-down to select the starting month(s) for the payment period (e.g. the starting months of the quarters for a quarterly profile).
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      2. Grab and drag the dot along the timeline to indicate when the Revenue/COS/Expense is expected to be received or paid as Cash.
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  7. Create profile or Apply changes.

When you create or edit a timing profile, you have the option to Add a note. You can type a brief note explaining the assumptions behind your choice of profile.

The assumptions note can be seen by others working on the forecast, so they understand why the timing profile was chosen. You can also opt to include the note in a report on the forecast, allowing stakeholders to understand and have confidence in the forecast.

Create new or edit existing? Choose the right option.

When changing a timing profile, you have the options of New profile or Edit existing profile. When you hover over the edit option, you’ll see cells on the Profit & Loss highlighted in light green.

If you edit the profile, you’ll edit it for all of the highlighted cells. If you only want to change the profile for a specific account, heading, or timeframe, click the New profile option instead of editing the existing profile.

Examples of how to forecast with timing profiles

Forecast Revenue received or Expenses paid as Cash is the same month

You may want to forecast:

  • All Revenue for a Profit & Loss account(s) to be received as Cash in the same month it is recorded.

  • All Cost of Sales or Expenses for a Profit & Loss account(s) to be paid as Cash in the same month they are recorded.

In this case, you would:

  1. Create or edit a timing profile.
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  2. Apply a Monthly timing profile cadence to the Profit & Loss account(s).
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  3. Type in 100% for the same month.
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  4. Delete all other months in the payment spread.
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  5. Create profile or Apply changes.

If you want the amounts to go to or come from a different Cash account, you can change the selected Cash/final position account.

Forecast Unearned / Deferred Revenue or Prepaid Expenses

You may want to forecast:

  • A portion or all the Revenue for a Profit & Loss account(s) to be recorded as Unearned or Deferred Revenue after it’s received as Cash.

  • A portion or all the Cost of Sales or Expenses for a Profit & Loss account(s) to be recorded as Prepayments or Prepaid Expenses after it’s paid as Cash.

Example (Monthly): You expect 50% of the Expense to be paid 1 month before it is recorded on the Profit & Loss and 50% to be paid the same month it is recorded on the Profit & Loss. For 1 month prior, you would type in 50%. For the same month, you would type in 50%. The month before the Profit & Loss amount is recorded, 50% of that amount will be sent to Unearned/Deferred Revenue.


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Example (Non-monthly):

To forecast funds as Unearned/Deferred Revenue or Prepaid Expenses:

  1. Create or edit a timing profile.
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  2. Choose a Cash Timing Type based on the expected payment cadence.
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  3. If Monthly:
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    1. Under the Payment Spread, click the Three dots icon to add prior month(s) to the spread.
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    2. Type in the percentage of the Revenue/COS/Expenses you expect to be received as Cash in the appropriate months.
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    3. Complete the payment spread so the percentages across the spread add up to 100%.
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  4. If any other cadence:
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    1. Choose the starting month(s) for the period.
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    2. Grab and drag the white dot along the profile timeline to the period in which the payment will be made.
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      For any period after the white dot, there will be a Balance Sheet entry to the designated Prepayments account (e.g. Unearned/Deferred Revenue or Prepaid Expenses) before hitting the Profit & Loss account.
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  5. Create profile or Apply changes.

Your timing profile preview would then include funds going to Unearned/Deferred Revenue or Prepaid Expenses, depending on the month for which you're viewing the preview. Here is an example:

If you want the amounts to go to different Pre-payment or Cash/Final posting accounts on the Balance Sheet, you can change the selected accounts.

Forecast Accounts Receivable or Accounts Payable

You may want to forecast:

  • A portion or all the Revenue for a Profit & Loss account(s) to be recorded as Accounts Receivable before it’s received as Cash.

  • A portion or all the Cost of Sales or Expenses for a Profit & Loss account(s) to be recorded as Accounts Payable before it’s paid as Cash.

To forecast funds as Accounts Receivable or Accounts Payable:

  1. Create or edit a timing profile.
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  2. Choose a Cash Timing Type based on the expected payment cadence.
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  3. If Monthly:
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    1. Under the Payment Spread, click the + icon to add additional months, if needed.
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    2. Type in the percentage of the Revenue/COS/Expenses you expect to be received/paid as Cash in the appropriate months.
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    3. Complete the payment spread so the percentages across the spread add up to 100%.
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  4. If any other cadence:
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    1. Choose the starting month(s) for the period.
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    2. Grab and drag the white dot along the profile timeline to the period in which the payment will be made. For any period before the white dot, the funds will be sent to the designated Accrued Payments account (e.g. Accounts Receivable or Accounts Payable) before they go to the Final Posting account.
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  5. Create profile or Apply changes.

Your timing profile preview would then include funds going to Accounts Receivable or Accounts Payable before hitting the Cash or Final Posting account, like these:

If you want the amounts to go to different Accrued Payments or Cash/Final posting accounts on the Balance Sheet, you can change the selected accounts.

Common Questions

Can you have multiple timing profiles on an account?

You can have different timing profiles on the same account at different times. This is useful if you want to forecast a future change in payment terms.

When you select a cell to apply a timing profile, that cell is the start date of the profile. Therefore, you can change the timing profile on an account for any period in the future.

Example: Your business is experiencing difficulties with its cash flow. You are renegotiating with one of your suppliers to pay half of the material cost 1 month after receiving the materials, rather than paying it all in the same month. This change will go into effect at the start of the next calendar year.

You go to the start of the next calendar year for the appropriate Cost of Sales account and set a new timing profile to reflect the upcoming change in payment terms.

It is not possible to have multiple timing profiles active simultaneously without the use of microforecasts and/or future accounts. To better understand those workarounds, you can see an example here.

How are actual or existing AR and AP amounts treated in the forecast?

You may have existing Accounts Receivable and Accounts Payable in your actuals. Those will be incorporated into the forecast, largely based on the timing profiles you choose. You can read more about the drawdown methodology in our ‘AR/AP Drawdown’ article.

How can I check to make sure a timing profile is working correctly?

The timing profile preview will show you how a timing profile is expected to work. You can also view the 'Balance Sheet Layer Detail' to see how a Balance Sheet account's balance is calculated in your forecast.

For additional ways to audit your forecast, see our ‘Audit your forecast’ article.

Next steps

🎉 Congratulations on taking a significant step in forecasting the baseline for your Balance Sheet!

To finish forecasting your Balance Sheet, set up journals and schedules:
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Forecast Journals & Schedules

Learn more


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