The Role of AI in Predicting A/R & A/P for Accurate Cash Forecasting


Treasurer’s guidebook on how to overcome the challenges involved in forecasting A/R and A/P with Artificial Intelligence and help treasuries achieve accurate forecasts.

Contents

Chapter 01

Importance of Cash Forecasting

Chapter 02

Why Is Forecasting A/R and A/P Challenging?

Chapter 03

Improving Cash Forecasting: Artificial Intelligence As an Enabler
Chapter 01

Importance of Cash Forecasting


Cash is often regarded as the lifeblood of an organization as it enables the proper functioning of a company. However, when it comes to forecasting cash, most companies are lagging behind due to their inability to predict A/R and A/P accurately.

Top Challenges In Cash Forecasting

What Are the Top Challenges in Cash Forecasting?

Cash forecasting is a complex problem and trying to estimate what will happen on the A/R side of the equation is much more complicated than on the A/P side.
Both have a component of unpredictability, but

  • With A/P, you know what is due and when you plan to pay that amount
  • With A/R, you know when payments are due from your customers, but you usually cannot
    reliably predict if they will pay on time, early,late or not at all.

Top Challenges In Cash Forecasting

Chapter 02

Why Is Forecasting A/R and A/P Challenging?


Why Is Accounts Receivable Difficult to Forecast?

Accounts receivable forecasting is particularly challenging as it is entirely in the client company’s hands. While payment terms are agreed upon, customers might not always adhere to them, adding an element of unpredictability to the process.

Further challenges that make forecasting A/R difficult include:

  • Sheer volume of invoices
  • Range of systems creating data variability
  • Number of entities involved

Factors Causing Unpredictability in A/R

Why Is Accounts Payable Difficult to Forecast?

In the case of A/P, the forecast is accurate in the short-term, up to the next 2 to 4 weeks.However, it is in the longer run that the accuracy takes a hit because of uncertainties revolving around payments.

Challenges when forecasting A/P are:

  • Difficult to predict payments for which invoices haven’t arrived yet from suppliers
  • Increased variability during seasonal rebate programs
  • Volatility in payment dates and timings during CAPEX projects

Factors Causing Unpredictability in A/P

Chapter 03

Improving Cash Forecasting: Artificial Intelligence As an Enabler


Benefits of Using Artificial Intelligence for Cash Forecasting

Transformation for Digital Treasury Starts with the Following Steps

  • CONSIDER AUTOMATION

    AI, when combined with TMS systems, Bank Systems and
    ERP systems can substantially improve the quality of the forecasts produced.

  • SEE THE BIG PICTURE

    Automate part or all of the process to reduce the risk of
    human error, thereby improving confidence in the forecast.

  • ANALYZE THE DATA

    Observe data from a high-level view across different
    categories and regions.

  • MAKE STRATEGIC DECISIONS

    Move from data entry and model creation to being strategic
    contributors in the CFO’s office.

Chapter 01

Importance of Cash Forecasting


Cash is often regarded as the lifeblood of an organization as it enables the proper functioning of a company. However, when it comes to forecasting cash, most companies are lagging behind due to their inability to predict A/R and A/P accurately.

Top Challenges In Cash Forecasting

What Are the Top Challenges in Cash Forecasting?

Cash forecasting is a complex problem and trying to estimate what will happen on the A/R side of the equation is much more complicated than on the A/P side.
Both have a component of unpredictability, but

  • With A/P, you know what is due and when you plan to pay that amount
  • With A/R, you know when payments are due from your customers, but you usually cannot
    reliably predict if they will pay on time, early,late or not at all.

Top Challenges In Cash Forecasting

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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.