A projection of an organization’s future financial condition based on projected inflows and outflows is known as a cash flow forecast. By using cash forecasting, a company may make sure it has enough money to pay its debts. Forecasts are crucial for growth since they direct strategic financial and investment decisions, influencing the company’s future and enhancing the bottom line.
Forecasts are crucial for growth because they impact strategic financial and investment decisions that alter the company’s future and increase profits. Cash flow forecasting enables businesses to operate without financial constraints and offers a roadmap toward achieving short-term and long-term company goals. Cash flow forecasts give companies the foresight to take corrective action, such as fine-tuning strategies, refunding assets, or approaching lenders. It saves the treasury teams time and effort while improving output quality. Cash flow forecast is essential for businesses for the following reasons:
Accurate cash flow forecasting provides real-time data and insights for CFOs to make better decisions. This enhances their credibility with the external stakeholders. Accurate cash flow forecasting allows businesses to foresee significant cash gaps and avoid missed payments. An accurate cash flow forecasting gives treasurers a detailed and valid view of the evolution of the company’s capital situation and future planning.
The following are the five best practices that lead to a data-driven treasury:
According to Corporate Bank’s report, treasurers say the primary benefits of becoming more data-driven are higher operational efficiency (39%) and improved return on investments/assets (36%).
Treasury cash flow forecasting software increases forecast accuracy by comparing old and new forecasts, identifying discrepencies, and making continuous refinements. The accuracy of cash flow forecasts and real-time data visibility help treasurers proactively detect and mitigate risks before they cause losses for the company. AI-powered cloud-based solutions save time and money while easily integrating with several data sources such as Treasury Management Systems, accounting tools, banks, spreadsheets. Cash flow forecast software also ensures that data is user-based, accessible, and seamlessly integrated.
It enables treasurers to secure deeper insights and even improve data quality and provides these additional benefits:
Here are a few impacts of data-driven forecasting on the treasury:
Cash flow forecast software produces timely, high-quality reports with insightful details and drill-down capabilities. Since the turnaround time is reduced, the CFOs can instantly gather reports on cash flows, available balances in banks, and funding requirements. The reports are also accurate enough to be shared with external stakeholders and build credibility with the board and investors.
For companies with an extensive product portfolio and high volume of customers, managing cash will be effective using a centralized environment. This approach ensures lower costs and strong data integrity. Cash forecasting software seamlessly integrates with ERPs, bank portals, FP&A systems, and legacy systems and through API or sFTP and dashboards help to gain easy and continuous data access. This leads to high cash visibility and better cash management.
Continuously managing cash inflows and outflows helps identify the areas and the time when there is a possibility of cash surplus. This helps to plan by collaborating with various teams and avoiding reactive decisions that lead to overborrowing, penalties, or non-optimal business investment. Cash forecasting software helps to track surplus/idle cash for treasurers to utilize idle cash for growth-related purposes or investments.
Cost savings increase because accurate cash flow forecasting helps firms prevent overborrowing. Automation helps in generating time savings to reallocate tasks of treasury to high-value tasks such as driving informed decisions across daily treasury operations. Automated cash flow forecasts also increase visibility into daily cash positions. Thus treasurers can better overview collection strategies, liquidating assets, or borrowing in advance at lower interest rates.
A $600 million global industry leader faced these challenges:
By using the HighRadius cash flow forecasting software, it achieved the following results:
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.