Worst, likely and best cash cases for a brokerage
How an insurance brokerage builds worst, likely and best cash flow scenarios when commission timing is uncertain, and checks them against actuals.
By Achekam · · 4 min read · For Insurance businesses in South Africa, Nigeria, Kenya
A brokerage's costs arrive like clockwork: salaries at month end, rent on the first, software subscriptions on their renewal dates. Its income does not. Commission comes when each insurer pays it, after its own statement run, sometimes late, sometimes short, and occasionally reduced by a clawback on a policy that lapsed. A forecast that assumes every insurer pays the expected amount on the expected day is a forecast of the best month you will ever have.
The answer is not a more confident single forecast. It is three of them. This piece explains how a brokerage in South Africa, Nigeria or Kenya can build worst, likely and best cash cases, what should change between them, and how to check the results against what actually happens.
Why one forecast is not enough
ICAEW advises producing worst-case, most-likely and best-case cash flow scenarios, including a prediction of the earliest date additional funding may be required, and checking forecasts against actuals to improve the process. It also recommends using cash forecasting tools to model different scenarios and consider the risks.
For a brokerage, the value of the worst case is not pessimism for its own sake. It is knowing, before it happens, which month the overdraft would be needed if two large insurers paid late at the same time, and whether the facility you have would cover it.
What changes between the three cases
Start with the inputs. ICAEW lists the things a cash flow forecast should be built on, including monthly turnover, cost of sales, how long the business takes to pay suppliers and customers take to pay, inventory needed, rent dates, capital expenditure, and tax and loan repayments. It advises revisiting them regularly, and closely when the business is going through change.
In a brokerage, most of the uncertainty sits on the income side. ICAEW advises keeping detailed data behind cash forecasts, particularly for debtors, with expected, worst-case and best-case dates, maximum, expected and minimum amounts, collection probabilities and a named person responsible for each item. Applied to commission:
| Item | Best case | Likely case | Worst case |
|---|---|---|---|
| Commission from each insurer | Paid on the earliest date it has ever arrived, at the full expected amount | Paid on its usual date, at the usual amount | Paid late, short, or both |
| Broker fees invoiced to clients | Collected within terms | Collected at your average | Some never collected |
| Clawbacks | None | At your usual level | Higher, as lapses rise |
| New business | As planned | Slightly below plan | Well below plan |
| Costs | As budgeted | As budgeted | As budgeted, plus any known risk |
Keep costs much the same across the three cases unless you have a specific reason to change them; the point is to test what the income side can do to you. Name an owner for each insurer's line, the person who will chase it when it is late.
Clawbacks deserve their own line rather than being netted off. Recording commission clawbacks covers how they arise and how to book them.
The earliest date you could need funding
Run each case forward month by month, adding receipts and taking off payments, until you see the lowest balance. In the worst case, the month the balance goes below your comfortable minimum is the date ICAEW asks you to predict: the earliest point extra funding may be needed.
That date is what you take to the bank, before you need it. A facility arranged months ahead, with a forecast to support it, is a different conversation from an overdraft request on the morning salaries are due.
Feeding budgets and actual figures into each case
A forecast is only as good as its starting point and its assumptions. Achekam supplies the figures that anchor both:
- The plan. A business can set a budget per account and period and compare it with actual figures from its ledger. The budget is the natural base for the likely case.
- The history. Management accounts show an income statement for a chosen period beside the period before, and a balance sheet at period end, exportable as PDF or CSV. Past months show how commission actually behaved, insurer by insurer, if commission is posted to separate accounts; commission income by insurer explains that set-up.
- The opening cash. A business imports bank statements as PDF, CSV, Excel, OFX, QIF, MT940 or CAMT.053, and each import is checked so that the opening balance plus movements equals the closing balance. The forecast starts from that confirmed balance, not from a figure someone remembered.
The scenarios themselves are usually built in a worksheet beside these exports. That is fine: what matters is that the inputs come from the books, not from memory.
Checking the forecast against what happened
At each month end, put the actual cash movement beside the three cases. Ask:
- Which case did reality look most like?
- Which insurer was out, and by how much compared with your range?
- Were any receipts outside even the worst case? If so, the worst case was not bad enough.
Then adjust the ranges. After a few months the likely case becomes genuinely likely, and the worst case stops being a guess. ICAEW's point is that this comparison is how the forecasting process improves.
A rolling short-term view complements the scenarios; a rolling 13-week cash forecast shows how to keep one. ICAEW's nine principles of cash management for finance professionals sets out the scenario approach, the detail to keep behind debtor forecasts and the controls over cash reporting.
Build the three cases this month from your budget and your last few months of commission receipts. The worst case will probably surprise you; it is far better that it surprises you on paper.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
