Why Advocate for Automated Cash Flow Forecasting

Why is automated cash forecasting better than manual-based cash forecasting?

The Global Treasurer survey states that treasury teams spend approximately 5,000 hours per year on spreadsheets, wherein 792 hours are spent on generating cash flow forecasts. Automated cash forecasting can help treasury in saving those 792 hours to focus on strategic decision-making.

Apart from time savings, here are some reasons why automated cash forecasting is better than manual-based cash forecasting:

1. Seamless integration:

While using spreadsheets, the treasury resources need to gather data from multiple data sources such as ERPs, TMS, and bank portals and from various teams such as FP&A, Payroll, HR, A/R, and A/P departments. This process is tedious and error-prone. However, automated cash forecasting supports seamless integration with multiple data sources and automatic data consolidation, thus minimizing the scope of errors.

2. Real-time access to information:

In manual-based cash forecasting, the treasury department needs to update the spreadsheets manually. Due to this, the turnaround time for reporting increases, and the reports become outdated when they are sent out to the CFOs. This causes difficulty in making timely decisions. On the contrary, automated cash forecasting helps to capture real-time data automatically and store them in a central repository. Automatic retrieval of data across all entities helps CFOs implement data-driven decisions by reducing the turnaround time.

3. Increased accuracy in cash forecasts:

Spreadsheet limits adding multiple variables, so specific nuances can’t be tracked while forecasting cash flows. In contrast, automated cash forecasting helps predict customer-specific payment dates accurately by incorporating multiple customer and invoice-level variables. External factors such as raw material price fluctuations and seasonality can also be considered to capture trends for generating an accurate cash flow forecast.

4. Identify variance across multiple entities and durations:

The manual process makes it difficult to track variance between forecasts and actuals and the causes of variance. But automated cash forecasting enables performing variance analysis for various cash flow categories for multiple durations. It also reduces the variance by continuously analyzing past and current results and making adjustments in the forecasts.

Learn more on how automated cash forecasting makes cash flow forecasts foolproof and how it improves treasury’s overall operations and performance.

What are the advantages of automated cash forecasting?

According to the Work Market 2020 Insight Report by ADP, 78% of business leaders believe that they could save up to approximately 7.5 hours a week by automating tasks, and 85% of business leaders believe that automating some of their tasks will give them and their employees more time to focus on company goals. Automated cash forecasting software helps treasury in achieving their business objectives in the following ways:

1. Enables effective borrowing:

Automated cash flow forecasts increase visibility into daily cash positions. Thus treasurers can better overview collection strategies, liquidating assets, or borrowing in advance at lower interest rates.

2. Enables proactive investments:

Forecasting cash flows help treasurers identify investment opportunities proactively. This supports them in allocating idle cash effectively. They can invest their cash into introducing new products, expanding or restructuring their business, acquiring another company, or seeking foreign markets. Hence, they can gain a competitive advantage and plan for the future.

3. Enables strategic planning by running ‘what-if’ scenarios:

Automated cash flow forecasts project shifts in the value of a portfolio based on the occurrence of different situations. By tweaking adjustments into the forecasts, the treasurers can understand the degree of impact on cash flows due to the different best-case and worst-case scenarios. This will help them to plan out strategies to combat potential financial problems.

4. Enables proactive risk mitigation:

Managing risks is a critical responsibility for treasury because the stakes are the highest. Hence having automated cash forecasting software is key to identify the degrees of impact and mitigate the risks in advance. Accurate cash forecasts allow treasurers to anticipate cash needs, improve capital allocation, understand movements in interest rates and commodity prices, manage credit and counterparty risks and control FX risks through confident hedging and repatriation decisions.

Why is HighRadius’ Cash Forecasting Cloud the best fit for automated cash forecasting?

HighRadius’ cash forecasting software is the best fit at offering the advantages mentioned above since it supports the following features:

• Automated data gathering and consolidation of financial data increases granular visibility and improves reporting to the CFOs.
• Easy integration 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.
• Automatic roll-up of forecasts from local to global level across various cash flow categories, regions, currencies, entities, and horizons improves accuracy.
• Spreadsheet functionality within the solution allows making manual adjustments to the forecast to account for one-off events.
• The ability to perform variance analysis over multiple cash flow categories, regions, and durations and drill-down capability to find the root causes of variance helps take necessary corrective measures.
• The closed-loop feedback model reduces the variance by using bank statement data and fine-tuning forecasts to boost forecast accuracy.
• Tailored forecasting cadence ensures that the forecasts meet the requirements and goals of a company. For instance, cash-deficient companies can forecast daily/weekly to prevent debts, and cash surplus companies can forecast quarterly to invest in business growth.
• The time series algorithm helps capture seasonal trends to maximize profits during peak seasons and reserve cash for off-seasons.
• Customer-specific variables are captured easily for identifying patterns in customers’ payment behavior. Thus, treasurers can easily track complex cash flow categories such as A/R and A/P.