Implementing Smarter and Quicker Borrowing Decisions with Cash Forecasting Software

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Treasury teams play a pivotal role in driving financial returns by overseeing the execution of strategies to meet financial goals. They can make or break a business in turbulent times.

If your company is often maxed out on credit or if your company needs to borrow at the last moment, it is most prone to be hurt by rising interest rates. On the downside, treasury and finance teams usually have scarce resources. Moreover, their bandwidth gets occupied with transactional tasks instead of focusing their time on strategic tasks. With lean teams and changing macroeconomics, how do they start their journey to increase operational efficiency and boost the bottom line?

Download this eBook to learn how rising interest rates can affect borrowing for your business and how treasury cashflow forecasting software can help make accurate and agile borrowing decisions.


Chapter 1

Introduction: Key Factors Determining the Movement of Interest Rates

Chapter 2

How can Interest Rates Hurt your Capital: Farewell to Cheap Borrowing?

Chapter 3

How to Bootstrap your Way to Resiliency

Chapter 4

Orchestrating Strategies with Cash Flow Forecasting System Technology to Be Financially Sound
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Chapter 01

Introduction: Key Factors Determining the Movement of Interest Rates

As businesses navigate through unforeseen challenges to find growth markets, one of their biggest concerns is dealing with inflation and interest rate fluctuations.

The graph below depicts how the United States is facing the highest inflation in three decades:

Key factorsOwing to the deadly combination of inflation risk and tight labor markets, rates are bound to stay above neutral to balance to combat the effects of stubbornly high inflation. Shedding some more light on this, the Fed raised interest rates seven times in the past year to combat rising inflation. In January 2023, the federal funds rate was 4.43%. Meanwhile, it has been predicted by the FOMC that the rate could continue to grow and peak at approximately 4.9% in 2023. 

While we are aware of the rising interest rates, let’s take a look into the causes of interest rates fluctuations:

causes of interest rate fluctuations
Now that we know of the factors that cause changes in business loan interest rates, the unknown part is what does it mean for your business? Let’s take a look at how interest rates can have a knock-on effect on your business in terms of availing of loans.

Chapter 02

How can Interest Rates Hurt your Capital: Farewell to Cheap Borrowing?

A plausible scenario arising from inflationary times is a fundamental change in the debt and investment environment. But how will your business be impacted by the hike in interest rates? Interest rates are directly proportional to borrowing costs. This fuels the concerns in CFOs of bidding adieu to cheap loan financing across businesses, especially mid-markets that already have been impacted more closely by inflation.

If your company is planning to take loans, you may end up spending more than expected. Rising interest rates can trigger challenges for companies with credit cards and existing loans, leading to less disposable income and greater overheads. Sometimes, borrowers may find themselves paying off the interest only rather than the loan itself.

Almost every business has outstanding loans that become more expensive with rising interest rates. Usually, these are long-term debts that are going to take years to pay off, so any increase in the interest rate on those loans means that a company has to carry the debt for a longer time and hence pay more. Additionally, higher interest rates make it challenging to take out new short-term loans to pay for unexpected expenses or to expand your business, hence tightening the belt of growth of your company for a significant time.

rising interest rate
These leading indicators are warning signs for finance leaders to remain vigilant and take necessary steps before the economy worsens further.

In the next chapter, we’ll look at eight best practices that you should implement to prevent rising interest rates from impacting your businesses negatively.

Chapter 03

How to Bootstrap your Way to Resiliency

Businesses should take the following preventive measures to make better decisions and ensure business sustainability:

ensure business sustainability

  1. Lower your expenses by lowering production costs, going paperless, and negotiating with vendors to ensure that you have enough money to pay debts.
  2. Pay the highest interest rate debts first to pay less interest over the term of your loan.
  3. Consolidate high-interest debts into a lower-interest-rate loan by taking out a single loan to pay off multiple debts.
  4. Opt for fixed-rate loans instead of variable loans and short-term loans instead of long-term loans.
  5. Boost your credit score to be eligible for the lowest rate a lender can offer by making debt payments on time and keeping the credit utilization ratio low.
  6. Keep an emergency cash cushion to deal with emergencies and unexpected expenses.
  7. Monitor your supply chain with a centralized system to track supply chain trends and industry-specific KPIs to flag the areas of strength and weakness, and keep your contracts handy to fix supply prices.
  8. Create smarter hedging strategies by understanding the areas that are most susceptible to destabilization.

These best practices can only help you resolve certain issues, but financial teams need to strike the right balance with technology adoption. The right technology or software can help CFOs make their businesses become foolproof to weather a financial storm and gain a competitive advantage to maximize profits.

Chapter 04

Orchestrating Strategies with Cash Flow Forecasting System Technology to Be Financially Sound

There is no quick fix when the economy is turbulent, but an innovative collaboration between corporations and technology can help build companies get an edge to make better borrowing decisions. Investing in treasury cashflow forecasting software can enable smooth operations in periods of high labor turnover.

Here are some ways a treasury cash flow forecasting system can be an anchor during these high-tide times for SMEs:

Borrow Better with HighRadius Treasury Cash Flow Forecasting System

The following are the ways HighRadius Treasury Cashflow Forecasting Software can improve your borrowing decisions:

  1. Automate data entry and consolidation: Teams no longer have to compile data from different systems and bank statements. This helps them get rid of manual overload and eliminate human errors in data entry. The software for real-time cash flow forecasting reduces the turnaround time to retrieve data from disparate financial systems such as ERPs, TMS, and FP&A systems and helps visualize cash flows and balances in dashboards with a granular-level analysis. As a result, teams will be able to focus more on creating cash flow forecasts in real-time.
  2. Forecast cash flows across different categories accurately: Extract accurate cash flow forecasts across cash flow categories, regions, currencies, time horizons, etc., automatically with a local-to-global roll-up.
    Accurate short-term and long-term cash forecasts help spot potential cash dips and surpluses. So instead of borrowing on the same day and paying higher interest, businesses can borrow in advance from their banks or credit card revolvers at lower interest rates or even reduce borrowing.For example, if you forecast cash flows with ~50% accuracy and borrow $10 M, you can reduce the borrowing cost by 10-15% with a forecast of ~80% accuracy.

    View the product tour to understand how the treasury cashflow forecasting software helps you build custom forecasts.

  3. Analyze scenarios: Create a range of best-case and worst-case scenarios against the base-case scenario covering time, amount, and currency shifts and compare them against forecasts with a snapshot analysis. Additionally, get insights into the impact of each scenario on cash flows.

    Take an instant product tour to find out how the cash forecasting solution improves scenario planning.

  4. Track deviations between forecasts and actuals: Understand the percentage of variation between forecasts and actuals and forecasts and forecasts. The cashflow forecasting software provides an overview of maximum and average variance to reduce your cash buffers and spend the idle cash for your debts and investments. Furthermore, accurate variance analysis can help you build accuracy in cash forecasts. Higher forecast accuracy leads to greater confidence in drafting decisions for acquiring loans and utilizing cash buffers.

    Take an instant product tour to learn more about variance analysis with the HighRadius cash forecasting solution.

Schedule a demo with our experts to get detailed insights on the benefits of considering treasury technology for decision-making.

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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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