Cash Forecasting Ultimate Guide

Maximize your working capital with our comprehensive guide to cash forecasting.
10 May, 2023
5 mins
Gerry Daly, AVP Product Strategy - Treasury

Table of Content

Key Takeaways
Introduction To Cash Flow Forecasting
Role of technology in transforming the Cash-Forecasting
Road to Implementing Cash flow forecasting Automation
How HighRadius Transforms the Cash Forecasting Process
Building a Business Case for Cash flow forecasting Automation
Some Additional Resources

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Key Takeaways

  • Learn how cash forecasting is essential for managing cash inflows and outflows effectively.
  • Challenges faced with  traditional cash forecasting methods such as inaccurate forecasts and limited stakeholder input.
  • How technology is transforming the cash forecasting process, leading to improved accuracy, efficiency, and decision-making.
  • Discover how you can build a business case for cash forecasting automation for your business

Imagine a scenario where a dartboard is placed in the center of your office and you spend time practicing hitting the bullseye. Could it be possible that your accuracy in hitting the target surpasses the forecasted numbers you are projecting now.


The reason is that the markets are constantly in flux. New technologies emerge and the economy goes through cycles that are hard to predict. Even seasoned treasurers struggle with pinpointing exactly where things are heading. It’s like trying to hit a bullseye on a spinning dartboard.

Before we dive deep into the nitty gritty and purpose of cash flow forecasting, let us understand what exactly do we mean by the term ‘Cash flow forecasting’.

Introduction To Cash Flow Forecasting

Cash flow forecasting is a process of estimating the cash inflows and outflows for a business over a certain period. It involves predicting how much cash a company will have on hand at any given time, and this information is critical for effective financial planning and management.

Cash Flow Forecasting Process

Cash flow forecasting involves the prediction of future cash flows, and the specific steps involved in the process may vary depending on the organization. However, some common steps typically include the following

  1. Collecting data: The first step in the Cash flow forecasting process is to collect data on historical cash flows, such as bank statements, accounts receivable, accounts payable, and other financial transactions. This data is used to identify patterns and trends that can be used to predict future cash flows.
  2. Creating forecasting models: Based on the analysis of historical data, forecasting models are created to predict future cash flows. These models may be based on historical trends, external factors such as economic conditions, or a combination of both.
  3. Reviewing and analyzing forecasts: Cash flow forecasting is an iterative process, and forecasts need to be reviewed and adjusted on an ongoing basis. This involves comparing actual cash flows to forecasted cash flows and making adjustments to the forecasting models as needed.
  4. Communicating forecasts: Once the Cash flow forecasting models have been developed and reviewed, the forecasts need to be communicated to relevant stakeholders, such as senior management, finance teams, and other key decision-makers.
  5. Taking action: Based on the cash forecasts, organizations can take action to manage cash flows, such as adjusting spending, managing working capital, or obtaining additional financing.
  6. Monitoring and reporting: The final step in the Cash flow forecasting process is to monitor actual cash flows and report on variances between actual and forecasted cash flows. This information is used to refine forecasting models and improve accuracy over time.

Overall, the Cash flow forecasting process is a critical component of effective cash management. By predicting future cash flows, organizations can make more informed decisions, improve cash management, and reduce risk.


Why is Cash flow forecasting Important?

Cash flow forecasting is a vital aspect of financial management, and there are several advantages of cash flow forecasting for businesses. Firstly, it enables them to plan their cash flow effectively, so they have enough cash on hand to meet their obligations, such as paying suppliers, employees, and taxes.

Secondly, it helps companies to identify potential cash shortfalls in advance, so they can take proactive measures to address them, such as arranging additional financing or delaying non-essential expenses.

Lastly, Cash flow forecasting helps businesses to make informed financial decisions, such as investing in new equipment or expanding their operations.


Different types of Cash flow forecasting

There are various types of cash flow forecasting methods that businesses can use, depending on their needs and the availability of data. Some of the most common methods include:
  1. Direct Method Cash flow forecasting: This method involves forecasting cash inflows and outflows by directly estimating the amounts that will be received or paid out over the forecast period.
  2. Indirect Method Cash flow forecasting: This method involves forecasting cash inflows and outflows by estimating the changes in the company's balance sheet accounts, such as accounts receivable, accounts payable, and inventory. Banner
  3. Rolling Cash flow forecasting: This method involves updating the cash forecast regularly, often on a weekly or monthly basis, to reflect actual results and new information.
  4. Bottom-Up Cash flow forecasting: This method involves forecasting cash inflows and outflows for each department or business unit and then aggregating the results to create an overall cash forecast.
  5. Top-Down Cash flow forecasting: This method involves forecasting cash inflows and outflows for the entire business and then allocating the forecasted amounts to each department or business unit.

Importance of Selecting the Appropriate Type of Cash flow forecasting Model  for the Business:

It's crucial for businesses to select the appropriate type of Cash flow forecasting model that best suits their needs and circumstances. Factors to consider when choosing a Cash flow forecasting model include the availability and reliability of data, the complexity of the business operations, the forecast period, and the level of detail required.

A cash forecasting  example- a small business with straightforward operations may find direct method Cash flow forecasting sufficient, while a large corporation with multiple business units and complex operations may need to use a more detailed approach, such as rolling Cash flow forecasting.

In conclusion, Cash flow forecasting is an essential tool for businesses to manage their cash flow, plan their financial activities, and make informed financial decisions. By selecting the appropriate type of Cash flow forecasting model and methods, businesses can ensure that they have accurate and reliable cash forecasts that support their financial objectives.

Challenges with the Traditional Cash flow forecasting Process

  1. Siloed information: In many organizations, knowledge and data related to factors that influence cash flow reside in silos across business units and teams. Lack of information sharing results in each team lacking insight into the broader picture, limiting the accuracy of cash flow forecasts.  
  2. Reliance on historical data: Traditional Cash flow forecasting relies heavily on historical cash flow data. While historical data provides a useful reference point, it does not account for current conditions which may differ significantly from the past. This can lead to inaccurate forecasts.
  3. Inaccurate assumptions and estimates: Cash flow forecasting requires assumptions and estimates to predict future cash flows. If these assumptions and estimates are inaccurate due to bias, lack of information, or improper methodology, the resulting forecasts will also be inaccurate. 
  4. Lack of real-time data: Traditional Cash flow forecasting typically uses data that is days or even weeks old. This lag in data access means that recent events that could impact cash flow are not reflected in the forecasts. Real-time data access is needed for the most accurate forecasts.
  5. Failure to account for unexpected events: Unexpected events by definition cannot be predicted but can have a huge impact on cash flow. Traditional Cash flow forecasting techniques typically assume business as usual and do not account for unforeseen events.
  6. Limited input from stakeholders:

    Gathering input from only a limited number of stakeholders, like finance teams, can provide a narrow perspective. Input from a wider range of stakeholders, including business units, can help identify issues that may otherwise be missed and lead to more accurate forecasts.

These factors can impede forecasting accuracy, leading to missed opportunities, cash flow problems, and other financial issues. Improving on these limitations of  Cash flow forecasting can provide substantial benefits to organizations. Developing capabilities like real-time data access, input from a wide range of stakeholders, and the ability to incorporate unexpected events can help transform Cash flow forecasting into a strategic strength.

Benefits of addressing the challenges of traditional Cash flow forecasting

Addressing the challenges with traditional Cash flow forecasting can yield significant benefits including:
  1. Accurate and reliable cash flow forecasts: The most important benefit is the ability to produce cash flow forecasts that are precise, trustworthy, and insightful. Accurate forecasts empower better decision making and help avoid undesirable outcomes.
  2. Strategic decision making: With a clear view into future cash positions provided by accurate forecasts, executives and managers can strategically plan and make decisions with confidence. They can pursue growth opportunities knowing the impact on cash flow.
  3. Risk mitigation: Improved cash flow visibility helps companies avoid risking cash shortages that threaten operations or excess cash that is not generating returns. Risks can be identified further in advance and mitigating actions taken.
  4. Stakeholder confidence: Continually producing accurate and reliable cash flow forecasts leads to greater confidence in the finance team and process by executives, managers, and other stakeholders. Forecasts are more likely to be consulted in the decision-making process. 
  5. Opportunity enablement: Precise knowledge of future cash surpluses can enable the pursuit of opportunities like new product initiatives, expansion into new markets, or investments in capabilities that generate returns. Companies can take advantage of opportunities for growth and investment.
  6. Resource efficiency: Improved Cash flow forecasting techniques require an upfront investment of resources but can save time and resources required for re-forecasting, managing crises from cash shortages or surpluses, and in some cases can reduce the effort required for the overall forecasting process. These efficiencies free up resources for other priority areas.

The future of Cash flow forecasting with technology

As businesses continue to grapple with the challenges of traditional Cash flow forecasting, emerging technologies are changing the landscape by providing new and innovative solutions.

Real-time data gathering and analysis, powered by advanced analytics tools, are enabling businesses to access up-to-the-minute information on their cash flows. Artificial intelligence and machine learning are being used to make more accurate forecasts by analyzing historical data and identifying patterns and trends. Cloud-based software is also making Cash flow forecasting more accessible and cost-effective by eliminating the need for expensive on-premise infrastructure.

Finally, integration with other financial systems, such as accounting and ERP systems, is providing a more comprehensive view of cash flows and improving the accuracy of forecasts, let’s dive deeper into the role of technology in cash flow  forecasting.

What is a cash flow forecasting system?

Cash flow forecasting is a vital financial management tool that helps businesses predict how much money will be coming in and going out over a certain period, typically on a monthly or quarterly basis. It's like peering into a crystal ball to anticipate your financial future.

A cash flow forecasting system is a set of processes and tools used by businesses to estimate their future cash inflows and outflows accurately. Think of it as a roadmap for your finances, helping you plan ahead and make informed decisions.

Role of technology in transforming the Cash-Forecasting

Continued progress in areas like data access, advanced analytics, automation, and artificial intelligence is enabling the rapid evolution of Cash flow forecasting capabilities. Some recent developments include:

  1. Real-time data access and forecasting: Access to real-time data on factors like sales, expenses, payments and collections will allow for frequent re-forecasting and projections of the immediate cash position. Short-term forecasts can be updated continually as the latest data is available.
  2. Advanced predictive analytics: Techniques like predictive modeling, machine learning, and statistical forecasting can help identify complex relationships within data and historical trends to predict future cash flows more accurately. These analytics will supplement human judgments.
  3. Increased automation: Automating manual elements of the Cash flow forecasting process can increase efficiency and reduce resource requirements. Automated data flows, formatting, and spreadsheet manipulation minimize manual interventions. Automation can begin to assume even higher-level forecasting tasks over time.
  4. Artificial intelligence: AI and technologies like ML could potentially provide future benefits for both short-term and long-term Cash flow forecasting. AI may be capable of real-time reforecasting by accessing and analyzing multiple live data streams 24x7x365. Even for short -term forecasts, AI could pinpoint patterns from vast sets of data, identify errors in human judgment, incorporate unstructured data, and optimize complex models.

The adoption of technology solutions for Cash flow forecasting offers several benefits for businesses. Improved accuracy and reliability of forecasts are the most significant advantages. By leveraging real-time data and advanced analytics, businesses can make more informed decisions and avoid cash flow problems.


How the the evolved process of forecasting looks like with technology


Road to Implementing Cash flow forecasting Automation

Choosing Between Building, Buying, or Upgrading

“Build, Upgrade, and Buy” are three common approaches organizations consider when implementing new software or technology solutions. Each approach has its own set of pros and cons, which should be evaluated based on the specific business needs and goals.


  1. BUILD: This approach involves building a software solution in-house to meet the specific needs of the organization. The main advantage of this approach is that it provides a tailored solution that exactly matches the business needs. However, building a solution in-house can be expensive as it requires significant in-house resources and expertise, resulting in higher costs.
  2. UPGRADE: This approach involves upgrading an existing system to improve its functionality and integration with internal systems. The main advantage of upgrading an existing system is better integration with internal systems. However, upgrading may result in gaps in functionalities and customization options when compared to buying from niche software providers, and it may require additional investment in software, hardware, and resources.
  3. BUY: This approach involves purchasing a pre-built software solution from a vendor. The main advantage of this approach is that it offers improved functionality, increased automation, and cost optimization. Constant software updates keep the system up-to-date with changing technologies. However, this approach may not be as close to the process as an in-house solution but can be very versatile and customizable.

In conclusion, when deciding which approach to take, organizations should evaluate their specific business needs and goals, as well as the pros and cons of each approach. Factors such as cost, functionality, customization, and integration should be carefully considered before making a decision.

Identifying Requirements for Cash flow forecasting Automation

To identify requirements for Cash flow forecasting automation solutions, organizations should follow a structured process that involves the following steps:


  1. Define business objectives: The first step is to define the business objectives for Cash flow forecasting automation. This involves identifying the specific goals the organization wants to achieve through the implementation of the solution. For example, the organization may want to improve accuracy, increase efficiency, reduce costs, or enhance visibility.
  2. Analyze current processes: The next step is to analyze the current Cash flow forecasting processes to identify pain points and areas of inefficiency. This involves gathering data on the current state of Cash flow forecasting, including the methods used, the frequency of forecasting, the accuracy of forecasts, and the resources required.
  3. Identify key stakeholders: The next step is to identify the key stakeholders who will be involved in the implementation of the solution. This includes the finance team, IT department, and other relevant stakeholders who will be impacted by the solution.
  4. Define functional requirements: Based on the analysis of current processes and business objectives, organizations should define functional requirements for the Cash flow forecasting automation solution. This includes identifying the specific features and capabilities required, such as the ability to integrate with other systems, support for multiple currencies, and the ability to generate reports.
  5. Define technical requirements: In addition to functional requirements, organizations should also define technical requirements for the solution. This includes identifying the hardware and software requirements, security requirements, and other technical specifications.
  6. Evaluate vendors: Once the requirements have been defined, organizations should evaluate vendors who offer Cash flow forecasting automation solutions. This involves comparing features, functionality, pricing, and other factors to find a solution that meets the organization’s specific requirements.
  7. Select a solution: After evaluating vendors, organizations should select a Cash flow forecasting automation solution that best meets their requirements. This involves reviewing proposals, conducting demonstrations, and negotiating contracts.
  8. Implement and test: The final step is to implement and test the Cash flow forecasting automation solution. This involves configuring the solution, migrating data, and conducting testing to ensure that the solution meets the organization’s requirements and objectives.

Organizations can identify the requirements for Cash flow forecasting automation solutions and select a solution that best meets their specific needs. This can lead to improved accuracy, efficiency, and visibility in Cash flow forecasting processes, ultimately helping organizations make better financial decisions.

Finding The Right Partner For You

Finding the right partner when buying Cash flow forecasting software is critical to the success of the implementation. The end goal for technology evaluation is to select a system that meets the treasury requirements.

The best way to do that is through a RFP process, it  helps you choose the best-fit cash flow planning software and is preferred by most corporations globally and are best utilized to objectively compare answers and select the most suitable solution vendor while choosing a business software, so lets look at the 4 step guide to choosing the right vendor for your organization.


To initiate the RFP process for choosing treasury software solutions, documentation is the first step. To ensure a smooth process, draft a well-structured document. The document should be based on the specific needs of the company. Unique questions should be asked that are tailored to the business type and goals.

As a next step create a vendor evaluation scorecard, Align the scorecard to the questionnaire sent out to evaluate responses more efficiently while  assigning  weights to the features to help with decision-making and prioritizing important requirements

Next step of evaluation  should be getting on a demo call with all shortlisted vendors to understand  the product features. When assessing the product, prioritize its effectiveness and value, evaluating its functionality, intuitiveness, user-friendliness, and scalability.

The final stage for corporate treasury software solutions vendor selection is the contracting and negotiating phase. This stage is where the vendors and the users agree upon the terms to ensure a successful treasury software solutions buy-in.

By following these steps, you can find the right partner when buying Cash flow forecasting software. A good partner can help ensure a successful implementation and provide ongoing support, while a bad partner can lead to implementation challenges and additional costs.

How HighRadius Transforms the Cash Forecasting Process

HighRadius offers cutting-edge cash flow forecast solution that empowers businesses to make confident financial decisions. Leveraging AI-based accurate forecasting, our solution provides valuable insights into the potential impact of your choices on your financial position.

With HighRadius, you gain the tools and intelligence needed to optimize your cash flow management effectively and make informed decisions.

Unique features and capabilities of highradius solutions

One of the key solutions they offer is Cash flow forecasting Cloud, which transforms the Cash flow forecasting process through the following ways:

  1. AI algorithms: HighRadius Cash flow forecasting Cloud uses AI algorithms to analyze historical transaction data and identify patterns and trends. This allows the system to generate accurate cash forecasts that are based on data-driven insights.
  2. Automated data collection: The system automatically collects data from multiple sources, including bank statements, ERP systems, and other financial systems. This eliminates the need for manual data entry and reduces the risk of errors and inaccuracies.
  3. Real-time visibility: HighRadius Cash flow forecasting Cloud provides real-time visibility into cash positions, enabling treasury teams to make informed decisions based on up-to-date information.
  4. Customizable forecasting models: The system allows treasury teams to create customized forecasting models that reflect the unique cash flow patterns of their organization. This enables more accurate forecasting and better decision-making.
  5. Collaboration and communication: The system enables collaboration and communication between treasury teams and other stakeholders, such as finance, accounting, and operations. This streamlines the Cash flow forecasting process and ensures that everyone is working towards the same goals.
  6. Scenario planning: HighRadius Cash flow forecasting Cloud allows treasury teams to conduct scenario planning and stress testing, enabling them to prepare for various contingencies and mitigate risk.
  7. Integration with other systems: The system integrates with other financial systems, such as ERP and accounting software, allowing for seamless data transfer and improved accuracy.

Overall, HighRadius Cash flow forecasting Cloud transforms the Cash flow forecasting process by leveraging machine learning algorithms, automating data collection, providing real-time visibility, enabling collaboration and communication, and offering customizable forecasting models and scenario planning. This enables treasury teams to make more informed decisions, improve cash management, and reduce risk.

Overview of Highradius’ Automated Cash Forecasting Solution


Building a Business Case for Cash flow forecasting Automation

Building a strong business case with potential ROI figures and tangible and intangible benefits is critical to get the necessary approvals for the investment. Below are some reasons why building a strong business case is important.

  1. Justification: A business case provides justification for the investment of resources, time, and money into a particular project or initiative. It helps to ensure that the project aligns with the organization’s goals and objectives and provides a positive return on investment.
  2. Clarity: A business case provides clarity on the project’s scope, objectives, and expected outcomes. It outlines the risks and benefits associated with the project and provides a clear plan for how the project will be executed.
  3. Communication: A business case provides a clear and concise way to communicate the project’s value and importance to stakeholders, including senior management, investors, and employees. It helps to ensure that everyone is on the same page and understands the project’s purpose and goals.
  4. Accountability: A business case helps to establish accountability for the project’s success or failure. It sets clear expectations for project performance and provides a framework for measuring and evaluating the project’s outcomes.
  5. Decision-making: A business case provides decision-makers with the information they need to make informed decisions about the project. It helps to ensure that decisions are based on data and analysis rather than guesswork or intuition.

In summary, building a business case is necessary to ensure that organizations invest their financial and non-financial resources in the right projects that align with their goals and objectives and deliver the expected value.

Below is a 9-step guide to building a business case for Cash flow forecasting

  1. Executive Summary: This section should provide a brief overview of the business case for implementing automated Cash flow forecasting software, including the objectives, benefits, and costs.
  2. Problem Statement: This section should describe the current challenges and issues with the organization’s Cash flow forecasting process, such as manual processes, forecast accuracy, forecast frequency etc,.
  3. Objectives: This section should outline the objectives of implementing automated Cash flow forecasting software, such as improving efficiency, accuracy, decision making or cost savings.
  4. Benefits: This section should describe the benefits of implementing automated Cash flow forecasting software, such as reduced manual effort, increased accuracy, enhanced decision making or improved cash flow.
  5. Costs: This section should outline the costs of implementing automated Cash flow forecasting software, including software licensing, implementation costs, training, and ongoing maintenance costs.
  6. Return on Investment (ROI): This section should describe the expected ROI of implementing automated Cash flow forecasting software, including the estimated cost savings, productivity gains, or other financial benefits.
  7. Implementation Plan: This section should outline the implementation plan for automated Cash flow forecasting software, including timelines, resources, and milestones.
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  9. Risks and Mitigation Strategies: This section should identify potential risks and challenges associated with implementing automated Cash flow forecasting software and describe the mitigation strategies to address these risks.
  10. Conclusion: This section should summarize the key points of the business case and make a recommendation for or against implementing automated Cash flow forecasting software.

Overall, a business case for implementing automated Cash flow forecasting software should provide a clear and compelling argument for why the organization should invest in this technology, outlining the benefits, costs, and risks associated with implementation. By presenting a well-researched and comprehensive business case, decision-makers can make informed decisions about whether to proceed with implementation.

Some Additional Resources

Download the HighRadius Cash Forecasting Datasheet to learn how end-to-end automation can help you optimize working capital by creating accurate and continuously improving cash flow forecasts

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