Implementing Smarter and Quicker Borrowing Decisions with Cash Forecasting Software

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.

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.

Businesses should take the following preventive measures to make better decisions and 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.

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.