Mark Harrison, Founder & CEO, Callisto Grand
Sam Dhingra, Director Solution Engineering, HighRadius
Buying and Implementing Technology for Treasury Professionals
If you’re looking to make cash forecasting easier for your large enterprise,
make sure you’re getting the tools you need. Check out our guide on the best cash management software.
In today’s world, Cash is King. A business needs to have an ample amount of cash to pay its investors, vendors, employees and meet financial obligations. Large enterprises often have a misconception that cash flow forecasting is helpful only for cash deficit organizations. This ignorance results in poor cash flow management and planning for investments and cash reserves, and loss of potential sales opportunities. Gauging how much cash your firm has currently and how much it will gain in the coming quarter helps to make proactive(well-planned) budgeting decisions instead of reactive(last-moment) decisions.
Budgetary forecasting ensures that your product and liquidity are on shelves, and serves as the lifeboat during a fiscal crisis or seasonal periods when you need to arrange loans at credit. Any delay in planning leads to plummeting sales and substandard market status. If the amount of cash flowing out is greater than the cash flowing in your books, you may end up having a spike in DSO and a drip in DPO, which means poor creditworthiness.
There are many negative consequences of inaccurate cash forecasting. Some of them are depicted below:
Lack of global visibility hinders decisions to manage idle cash which could be used to buy fixed assets for improving productivity, buyback stocks, and buy insurance.
Lack of transparent and accurate data leads to irrational hedging decisions and incorrect reporting to the CFOs and greater chances of missing tax-reducing opportunities. Staying unprepared for cash squeezes leads to higher bank fees and improper use of credit lines.
It is equally essential to identify seasonal peak times where there are spikes in sales as to identify red flags in the economy. If your business forecasting software fails to predict cash surpluses, it loses investment opportunities in the share market.
Inaccurate long-term forecasts decrease the quality of your workforce. Hiring in distress means hiring in haste. You might have lower funds to hire a pool of qualified talents, or might lose good employees if your firm’s reputation is at stake.
Buildings, machinery, systems, and other assets are critical for success. Poor forecasting makes you unprepared for buying or maintaining your assets. Buying in hurry lowers the possibility to negotiate and you might end up spending a lot of money.
If an organization is weak at identifying a crisis before it hits, it ends up with lesser time to ballpark revenue goals. Measuring your liquidity untimely leads to a tunnel vision, so the firm eventually runs out of money or gets penalized.
The credit access for large businesses is different from small businesses for the following reasons:
The cash flow forecasts differ based on a company’s legal structure, market niche, forecasting goals, etc. Short-term forecasts are used to monitor A/P and A/R closely to predict when payment will be received and to identify risk horizons, whereas long-term forecasts help analyze “what-if” scenarios, grab investment options, run variance analysis for finding discrepancies like variance, improve business agility in terms of capital expansion, and evaluate progress towards the final target.
These are some of the tools or cash forecasting software that are used widely across big firms:
Spreadsheets are commonly used to pull raw data from ERP/ bank portals for forecasting purposes. It is budget-friendly, user-friendly, and convenient. Historical data of sales are accounted for from accounting departments, CRM, etc. to prepare a forecast, and charts are prepared for better understanding.
However, Excel cannot fully meet the forecasting requirements due to the following reasons:
The above situation can be tackled with TMS for improving the accuracy of the forecasts.
Companies contact their associated banks to gather data for preparing time-series forecasts. ERP helps in obtaining past data to understand patterns. While, TMS manages real-time cash, hence increasing accuracy in forecasts. TMS predicts estimated annual sales, revenues, and profit/loss for different periods and frees up cash, minimizes paperwork involved in trading finance, and helps in executing payments across trading protocols.
Although, this combination poses a risk in cash forecasting due to the following reasons:
If you need to do more quality checks and forecast more timely with utmost accuracy, flexibility, and visibility, a cloud-based solution is the right choice.
Yet, limited data and lack of an appropriate technical infrastructure can serve as a roadblock to adopting automation.
Since larger companies can afford robust technologies and have sufficient data to support cash forecasting, they can adopt cloud platforms and AI for enhancing their performance to reach their long-term goals through proper visualization of cash position.
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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.
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