4 Reasons Treasury Analysts Fail to Generate Accurate Cash Flow Forecasting

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Accurate cash flow forecasting is essential for companies of all sizes because it gives a complete view of future cash flow to detect liquidity shortages/surpluses. This ebook provides insights on four reasons why treasury analysts are unable to create highly accurate cash forecasts and how Artificial intelligence can help them overcome the bottlenecks and increase forecast accuracy up to 95%.

Chapter 1

Role and Responsibilities of Treasury Analysts

Chapter 2

4 Reasons Why Treasury Analysts Can’t Create Accurate Forecasts

Chapter 3

4 Ways AI-Based Cash Forecasting Software Can Help Treasury Analysts Create Accurate Cash Flow Forecasts
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Chapter 01

Role and Responsibilities of Treasury Analysts

Treasury analysts participate in the four core activities of cash forecasting. This is how a day in the life of a treasury analyst with a manual treasury process:

 What are the challenges of cash management?

Consequently, manual process or spreadsheet-based forecast reports are inefficient, error-prone, and inherently dead on arrival when they reach the treasurer or CFO.

Treasury analysts frequently attempt to alter their existing spreadsheets to meet new business requirements. Since the reports are often dead-on-arrival and based on assumptions, firms overborrow due to financial distress since they aren’t well prepared for macro-level fluctuations.

A recent survey with 1000 Fortune companies revealed that nearly 90% of treasurers rate their cash flow forecasting as unsatisfactory, with almost all citing spreadsheets as the major drawback, followed by ‘lack of richer data’ being the other. Discover the four reasons for inaccurate cash forecasts below to increase your accuracy.

Chapter 02

4 Reasons Why Treasury Analysts Can’t Create Accurate Forecasts

 What are the factors affecting cashflow management software?

#1: Lack of data quality and inability to collaborate

According to a report by Gartner, 40% of businesses fail to achieve their business objectives due to poor data quality. The world today generates more than 2.5 quintillion bytes of data every day. Collecting, cleaning, managing, storing, and analyzing this ever-increasing volume of data is no small feat. Businesses usually store data in different formats in disparate sources (ERPs, bank portals, FP&A systems, TMS), and aggregating this data becomes tedious in spreadsheets. On-premise ERP systems are typically installed locally on the company’s hardware and managed and maintained by IT staff, which makes it difficult for treasury analysts to operate in an accessible and known environment while forecasting.

While forecasting manually, front-line staff need to collect the data from different teams like A/R, A/P, HR, and FP&A and then consolidate all the data into a single sheet which is time-consuming. Due to this, the turnaround time in creating forecasts and reports increases, which delays decision-making from the C-suites. In addition, poor data management practices such as not storing data securely, using raw data for analysis without cleaning it, and collecting inaccurate data can all negatively impact your business and its operations. For instance, incomplete or inaccurate data makes the cash forecasting process inaccurate, which makes it challenging for treasury analysts to create and share accurate numbers with treasury managers and CFOs.

#2: Inability to identify different payment terms

Each customer has a unique payment pattern and behavior. Also, different invoices may have different currencies. 

When predicting accounts receivable using spreadsheets, treasury analysts add variables like invoice date and average payment date but fail to add more variables to predict payment dates accurately due to the limitations. Adding 50+ variables provides a more realistic and holistic view. But, it is difficult to manually tweak as many as four variables, let alone track 50+ variables using spreadsheets. 

#3: Low accuracy and frequency in cash forecasting

According to the Cash Forecasting & Visibility Survey by Strategic Treasurer, 91% of treasury analysts still use spreadsheets for forecasting and face challenges in getting an accurate forecast.

However, spreadsheets can’t factor in all the necessary forecast data, such as changing FX rates, seasonality/business cycles, and macroeconomic fluctuations. This reduces the accuracy of a cash forecast. The frequency of forecasting can’t be increased enough due to lean treasury teams and most of their time getting consumed on manual data aggregation.

#4: Less bandwidth to perform variance analysis

Lack of bandwidth hinders treasury analysts from performing variance analysis, especially when using manual tools like spreadsheets.

For most organizations, treasury analysts gather variances at the end of every year in spreadsheets by comparing past year actuals to current year actuals. Without regular analysis to understand the variance drivers and identify high variance categories, the forecast accuracy can’t be improved.

Chapter 03

4 Ways AI-Based Cash Forecasting Software Can Help Treasury Analysts Create Accurate Cash Flow Forecasts

AI-Based cash forecasting software helps treasury analysts perform the following tasks easily:

Benefits of using AI-based cash forecasting cloud

  1. Build easy collaboration with automated data gathering:
    Cash Forecasting Cloud is designed to blend effortlessly with any ERP, banks, TMS, accounting solution, or other legacy systems through API. APIs work by creating an interface between otherwise incompatible software and data sources. Moreover, cloud software fixes the collaboration gap and allows treasury analysts to collaborate with others through a single repository.

    This interface enables smooth data transfer, allowing treasury analysts to easily collect real-time data from multiple entities with different technology environments and integrate them. This eliminates issues such as data incompleteness or lack of data quality (inaccuracy). Additionally, with cloud workspaces, where treasury analysts, managers/execs, and other teams can share inputs and feedback and build forecasts together. This helps analysts analyze data and quickly create forecast reports for the CFOs.


  3. Track different customer payment behavior:
    The cloud is able to capture 50+ customer-specific variables, which gives a more realistic view of payment patterns. Moreover, AI analyzes consumer payment terms and credit scores by analyzing customers’ historical data. This help to identify high-risk customers.

    With AI-based software, treasury analysts can perform historical analysis and regression analysis to understand the payment patterns and predict customer-specific payment dates by supporting multiple customer and invoice-level variables.


  5. Get high accuracy and frequency in cash forecasting:
    With HighRadius Cash Forecasting Cloud, analysts can create forecasts with up to 95% accuracy for both short-term and long-term. Additionally, It eliminates manual labor and allows the analysts to focus on high-priority tasks.

    Treasury analysts can also adjust time horizons and increase the forecast frequency. This allows them to perform cash flow forecasts for multiple durations and win more credibility at the CFO’s office.


  7. Perform variance analysis for multiple durations:
    It drills down into forecast variances across multiple cash flow categories like regions, and company entities to spot, report, and fix the forecast variances.

    AI-Based software uses a closed-loop feedback system that helps identify past mistakes and improve results. It supports reusing the AI model’s predicted outputs to train new versions of the model and gives analysts the information they need to alter their forecasts accordingly.


Business Success Transformation Story with HighRadius Cash Forecasting Cloud

A billion-dollar construction firm tackled liquidity shortages for 1800+ projects using automation and forecasts with 94% accuracy. They initially lacked project-level visibility, and a poor reporting system generated workflow difficulties, inadequate liquidity planning, and cash shortages.
But with HighRadius Cash Forecasting Cloud, they achieved:

  • End-to-end automation from data gathering to reporting
  • Continuous visibility into 1800+ projects
  • 95% accuracy achieved in A/R and A/P forecast
  • Increased workflow efficiency

Talk with our solution expert today to learn more about the features of HighRadius’ Cash Forecasting Software that can benefit your company and team.

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The HighRadius™ Treasury Management Applications consist of AI-powered Cash Forecasting Cloud and Cash Management Cloud designed to support treasury teams from companies of all sizes and industries. Delivered as SaaS, our solutions seamlessly integrate with multiple systems including ERPs, TMS, accounting systems, and banks using sFTP or API. They help treasuries around the world achieve end-to-end automation in their forecasting and cash management processes to deliver accurate and insightful results with lesser manual effort.

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