When a crisis strikes, companies take a hit financially. To prevent catastrophic effects on liquidity, accurate cash forecasting is essential.
Cash forecasting automation provides the following benefits such as:
Since treasury is responsible for handling all the cash flows of a business, teams need to respond immediately and proactively to avert an economic crisis.
The focus points for treasurers amid a crisis are as follows:
With an automated forecasting solution, treasurers can easily access data and shift their focus on the activities mentioned above instead of performing low-value tasks.
According to PwC’s Global Crisis Survey 2021, finance and liquidity are among the top 3 impacted areas during an economic crisis. A ‘black swan event’ such as Covid-19 had already proved that treasurers need to be alert with crisis management and business continuity plans. Crises such as a pandemic, recession, and macroeconomic fluctuations can impact business cash flows without prior warning.
The major challenges that companies face during crises are:
As the crisis unfolds, business leaders should not resort to using their intuition alone for making critical decisions. Treasury can better cope with uncertainty by continually monitoring their cash position, forecasting their future liquidity state, and also mapping and measuring their responses.
The following are ways treasury teams can respond to a crisis with an automated cash forecasting solution:
Treasurers can regularly track current and future cash positions based on the forecasts. A baseline forecast is critical to analyze and make tweaks to the forecast models. This leads to proactive cash management.
Determining the right data sources helps in ensuring accurate data for fetching reliable cash forecasts. Considering historical performances and incorporating seasonality trends and external factors such as raw material price fluctuations and customer patterns, helps improve forecast accuracy.
Accurate data and real-time reporting are useful to identify potential cash crunches or spikes so that treasurers don’t just stick to making short-sighted decisions. Through accurate cash flow forecasts, CFOs can be in a better position to devise effective decisions to mitigate the impacts of potential financial threats.
Speak to a solutions expert to learn more about how automated cash forecasting helps treasury teams prevent detrimental effects during times of crisis.
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