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How Accurate Cash Flow Forecasting Helps Rapidly Growing Mid-Sized Organizations?

What you’ll learn

  • The importance and advantages of cash flow forecasting in mid-market companies
  • Top tips to improve cash forecasting

Where to use cash flow forecasting?

The treasury department performs cash forecasting at regular intervals to foresee future cash positions, prevent debilitating cash shortages, and maximize profits on any cash surpluses they may have. Cash flow forecasting prepares a firm to function without financial concerns and creates a pathway to envision business objectives for the near future and the long run.

The importance of cash forecasting

Organizations most commonly use cash forecasts for the following objectives:
  • Short-term liquidity planning: Manage the funds available on a daily basis to guarantee that the company can meet its short-term obligations.
  • Liquidity risk management: Increase insight into any future liquidity concerns so the treasury has more time to deal with them.
  • Growth planning: Assure that the company has enough working capital on hand to cover future revenue-generating initiatives.
  • Key date visibility: Creating cash flow projections for critical reporting dates such as the end of the year, quarter, or month.

The current state of mid-market treasury

In many countries, the small and medium-sized enterprise (SME) sector can account for as much as 40–50 percent of economic activity. SMEs often require access to growth capital during their expansion phase, and the greatest single problem facing SMEs in an expanded role is insufficient liquidity.

The treasury systems also have their own set of challenges. The following are some of the key pain points faced by the mid-market treasuries:

Key pain points of mid-market treasury

  • Spreadsheet-based process
  • Decentralized data
  • No data visibility at a central location, or permissions/ access control
  • Lean treasury team structure
  • No effective risk management strategies

How can midmarket treasury improve cash flow forecasting accuracy?

A mid-market company faces several obstacles that have an impact on their revenue. Demanding consumer requirements, increased competition, delayed customer payments, managing payables, and maximizing working capital are just a few of the numerous issues faced by them.

Some of the key challenges faced in cash forecasting include:

  • Visibility: Viewing predictions by categories, regions, and entities, as well as tracking individual cash flows.
  • Accuracy: The ability to make confident judgments based on the accuracy of forecasts.
  • Frequency: The frequency with which forecasts must be updated to make timely judgments.

5 tips to get an accurate cash flow forecast

Cash forecasting is a difficult skill to master. The cash projection might take days, weeks, or even months to put together, depending on the organization, processes, and tools used. In unpredictable times, agility is more important than ever.

Here are five tips to take cash forecasting for mid-market treasury to the next level:

  • Assess internally: Look for a robust system that can handle end-to-end cash forecasting operations, produce accurate predictions, and provide granular visibility.
  • Know the problem: Determine the need to update to better technology and how it can assist with forecasting, what areas it can help with, and whether it can save the team enough time to make strategic decisions.
  • Analyze the solution: Examine if the solution will integrate easily with the system and whether it has enough flexibility and scalability to match with the KPIs in the future, even if they change.
  • Decide the purpose of the forecast: Determine the reason for the cash forecasts. Forecast daily for daily cash situations or to avoid overborrowing, and predict weekly or monthly for business expansion or M&As, depending on the demands.
  • Perform market research: Assess how fast the chosen tool/technology will pay for itself, as well as whether the technology will lower the variance between projections and actuals, hence boosting the gross savings.

5 Advantages of an accurate cash flow forecast

  • Estimate future cash flows
  • Earn profit from any cash surpluses
  • Get out of debt faster
  • Avoid crippling cash shortages
  • More predictable and stable business growth

Treasury should explore automated methods to help them with their cash flow predictions. They should switch from spreadsheets and bank interfaces to AI-enabled treasury management software for boosting accuracy in cash forecasting. Treasury systems streamline financial operations across the organization by improving cash management and assisting businesses to improve efficiency, visibility, and control.

Schedule a demo with HighRadius today to create accurate forecasts for your organization.

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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.