Advancement of Cash Forecasting with AI: A Detailed Look

What you’ll learn

  • Learn about the key challenges while forecasting cash and how AI overcomes those challenges.
  • Unearth the several benefits offered by AI.

Treasury focuses on liquidity forecasting and planning, releasing trapped working capital, and making decisions on managing finances and risks. Covid-19 has exacerbated the importance of forecasting with fluctuating revenues and tightened budgets.

However, most times the forecast is not accurate or timely enough for taking prudent decisions. There could be multiple challenges that stem while forecasting cash.

Challenges in cash forecasting

These are the most common root causes for challenges in cash forecasting:

  • Inflexible and antiquated systems
  • High turnaround time to generate forecasts
  • Manual data gathering
  • Lack of granular visibility into unit-level forecasts
  • Absence of variance analysis

To overcome the challenges, it is important to understand what drivers are under the treasury’s control and which ones are not.

Drivers within control

  • Accuracy in forecasting A/P.
  • Accuracy in forecasting A/R.
  • Accuracy in forecasting capital expenditure.

Drivers outside control

  • Industry and/or company-specific cost drivers.
  • Industry and/or company-specific demand drivers.

Market fluctuations are beyond anyone’s control but the accuracy in forecasting is something that can be governed. If data is updated frequently and seasonality is tuned into the forecasts, it gives a realistic picture of accounts receivable and accounts payable, despite them being highly unpredictable.

Ways AI improves cash visibility

AI-based cash flow forecasting provides better oversight in cash positions by:

  • Auto-classifying bank inflows and outflows: Classifying transaction details automatically from bank files to operational and non-operational cash flow categories for better reporting and analysis.
  • Capturing daily and intraday cash positions: Capturing consolidated view across bank partner data feeds on daily and intraday frequency.
  • Using cross-departmental workflows: Workflows help in detecting root causes for abnormalities and steep cash variances.
  • Enriching bank data automatically: Providing real-time bank data and updating General Ledger in your ERP automatically.
  • Integrating multiple systems: Gathering data from banks and post it automatically to global ERPs.

Enriched visibility across all cash flow categories such as A/R, A/P, and CAPEX enhances forecast accuracy and also provides real-time information to drive key decisions efficiently.

Benefits of Artificial Intelligence

Excel-based cash flow forecasting involves significant manual work, therefore automating most of the processes that don’t need human involvement alleviates much of this burden and saves a lot of time to focus on high-value activities like analysis and decision making. These are some of the key benefits that Artificial Intelligence provides in the cash forecasting process:

  • Automated data gathering and consolidation
  • Automated cash forecasting across various cash flow categories across various regions, entities, and horizons
  • Selecting the right variables that are relevant to output
  • Identifying best-fit curve/ algorithms to forecast
  • Tracking variance analysis regularly and finding variance drivers.
  • Making confident investment/borrowing decisions through accurate forecasts.

AI helps organizations to prioritize their tasks better and improves forecasting accuracy. This helps the treasury team stay abreast of changing environments and macroeconomic fluctuations that might go unnoticed otherwise.

In the new normal, CFO’s expectations are growing rapidly and the treasury needs to step up to provide strategic value. This can only be possible if they optimize their existing processes with technology.

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HighRadius Cash Forecasting Cloud – an advanced forecasting system – leverages the proven RivanaTM Artificial Intelligence (AI) platform to provide the most accurate cash flow forecasts – right from a ledger account level and rolling up to the organizational level. Delivered as a Software as a Service (SaaS), the solution seamlessly integrates with your company’s ERPs, accounting systems, banks and order management systems. Multiple AI and Machine Learning algorithms process datasets including bank statement inflows/outflows, sales orders/customers invoices, purchase orders/vendor invoices and expense reimbursements for comprehensive as well as accurate cash flow forecasts. The closed-loop, machine learning feedback system ensures that the forecast models become more accurate with time.