Everything CFOs need to know about the journey to leveraging cash flow forecasting software

Global markets remain turbulent, and accounting for unexpected uncertainty has become the norm. So, CFOs should embrace robust software for cash flow forecasting to become strategic advisors in their organization. The following are some of the reasons why using the right AI forecasting software can help the business grow:

Accurate modeling

Technical expertise, as well as the bandwidth and tools necessary for proper modeling, are frequently lacking among treasury employees. Because some cash flow categories demand distinct models and data, it’s important to look at how data is incorporated into the models. Heuristic models, for example, are used for Payroll, Expenses, Taxes, CAPEX, Investment & Debt, whereas AI models are utilized for forecasting A/R and A/P. With the help of centralized software, forecasts can be created accurately with suitable models and rolled up from regional to a global level for various entities, company codes, categories, and subcategories.

Benefits of accurate modeling

• AI enables the incorporation of external factors such as business cycles, seasonal trends, different payment terms, and discounts/rebates in order to obtain a more accurate forecast for A/R and A/P.
• Using suitable models also helps to get increased granular visibility, and the treasury team can drill down into different cash flow categories across different time periods, entities, and currencies.

Capture customer-centric variables

It is critical to collect customer data in order to determine trends and patterns in payment behavior. Spreadsheets have a restriction on the number of variables that can be entered. Some accounts’ behavior can be tracked using the ADP technique or weighted average, however, others with discount rates are more difficult to track.

Benefits of capturing customer-centric variables

• The AI cash forecasting system improves over time by learning from the data- by comparing historical and current data to analyze trends. It also captures multiple variables, hence it forecasts invoice due dates precisely.
• Customer-specific variables are easily recorded in order to uncover patterns in different customer payment behavior. Thus, CFOs can understand customer payment behaviors and leverage strategies to improve their receivables.

Improve scenario analysis

An AI cash flow forecasting software assists treasury in improving scenario analysis to prevent cash shortages since it provides the foresight to track current and potential cash shortages with drill-down capability using dashboards.

Moreover, the software also helps CFOs learn when and where they’ll have surplus cash in the bank, as well as seeing when the surplus will occur. Hence, they can better plan for investment and expansion activities.

Benefits of accurate scenario analysis

• By estimating the impact of anticipated future events and situations, AI forecasting software assists businesses in managing risks more proactively.
• It can assist companies in making better decisions by examining the risks and rewards of various options through accurate stress-testing of best and worst-case scenarios.

Improved analysis and reporting

AI forecasting software can create high-quality reports in real-time with drill-down capabilities. It gives a fair and consistent examination of a company’s financial health by determining cash deficits or surpluses by tracking cash flows and planning accordingly for investment and borrowing.

Benefits with improved analysis and timely reporting

• Accurate cash flow analysis enables a company to be proactive rather than reactive, and it highlights a company’s most profitable revenue streams with immediate updates on when and where money travels inside corporate accounts.
• Improved reporting increases the credibility of the organization and helps to build and improve relationships between external stakeholders, investors, and the board of directors.

Accurate and frequent variance analysis

AI forecasting software uses closed-loop feedback to reduce the variance over time. A feedback loop allows the AI model’s projected outputs to be reused to teach new models.

Benefits of accurate and frequent variance analysis

• The system shows the deviation between the forecasts and actuals, with the amount and the variance source. This helps to make improvements in forecasts for building forecast accuracy in the future.
• The treasury team also has more bandwidth to perform frequent variance analysis over both short-term and long-term time horizons, such as daily, weekly, and monthly. This allows treasury to make adjustments in forecasts and reduce variance to create highly accurate cash forecasts.

Get in touch with our solution experts to know more about the benefits of a cash forecasting solution for the CFOs.