Cash forecasting should be done frequently and timely because of the following reasons:
The traditional way of forecasting is subjective in nature and dependent on the instincts of treasurers. In the traditional way of forecasting:
The traditional way of forecasting doesn’t leave enough time to focus on strategic activities. The impact of traditional forecasting are:
The four drivers for the global cash forecasting to work optimally are:
1. Timeliness: Forecast close to real-time to drive timely business decisions.
2. Scalability: Standardize processes so that they can be easily replicated to other entities.
3. Granularity: Improve the ability to deep-dive into invoice-level details to drive course correction.
4. Accuracy: Achieve the baseline accuracy for the business to make confident decisions.
Timeliness can be achieved by:
Scalability can be achieved by:
Granularity can be achieved by choosing centralized forecasting over decentralized forecasting.
Centralized or direct-method of forecasting:
The impact of centralized forecasting are:
Decentralized or indirect-method of forecasting:
The impact of doing indirect-method of forecasting are:
A certain baseline level of accuracy helps to better manage liquidity and make strategic decisions.
Baseline accuracy is the minimum accuracy required for companies to make business decisions. It varies from business to business.
The reasons for the inaccuracy of cash forecasts are:
Forecasting accuracy can be improved in the following ways:
AI is used for forecasting complex operational cash flow categories such as A/R and A/P. On the contrary, for more predictable and stable categories such as payroll, taxes, CAPEX, heuristic models are more suited.
Performing variance analysis frequently helps in:
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