Understand the importance of accurate forecasting in new normal and learn how AI and automation are transforming treasury.
“There is really only one way to address cash flow crunches, and it’s planning so you can prevent them in advance.” — Elaine Pofeldt
The way an organization forecasts, determines what its future is going to be. Even though cash forecasting had been the top priority of the treasury for decades, with the emergence of COVID-19, it has increased by many folds.
The recent joint survey conducted by HighRadius in association with Treasury Webinars during Q2 of 2021 showed that 60% of the respondents agreed to the fact that the frequency of forecasting cash has increased largely due to COVID-19. But the priorities remain different. While the smaller organizations need to deal with cash crunches to stay afloat in the market, the larger organizations prioritize more on dividend planning to maintain their market share.
The same survey also conveyed that larger organizations achieve the highest accuracy of 95% and above in their forecasts while the smaller organizations tend to have less than 80% accuracy.
It can also be inferred that the majority of the respondents, around 50-51% forecast cash on a daily and Ad Hoc basis to have a better insight on market fluctuations, day-to-day business, and cash buffers.
This ebook provides insights on the current state of cash forecasting & how COVID-19 has impacted the treasury’s influence over the organization.
HighRadius conducted a joint survey in partnership with Treasury Webinars in Q2 of 2021, focused to help the treasury align with the current state of cash forecasting.
There were 282 active respondents involved in the study. Respondents belong to small organizations with around 25 employees to large organizations with more than 5,000 employees.
Different firms forecast cash for different objectives based on their organization goals.
Cash forecasts, when accurate and used properly can be very valuable for an organization as it enables in
Automated forecasting models with accurate forecasted numbers enable organizations to make precise financial decisions.
With the emergence of COVID-19, it is evident that organizations are focusing more and more on cash forecasting.
Cash forecasting has been the top priority of treasurers over the past two decades. However, organizations are still forecasting cash manually. The shortcomings of the manual cash forecasting process have been brought to the forefront by COVID-19.
According to a AFP survey, during COVID-19, the forecast frequency (daily, weekly, monthly) has increased to 80% from roughly 57% in 2020 and 2021.
The various uncertainties faced during COVID-19 have forced firms to rethink their cash forecasting strategy. More and more firms are looking out for data-driven, timely and flexible cash forecasting systems. To generate best-in-class and accurate forecasts, treasuries need to focus on the below core areas of cash forecasting:
Irrespective of size, treasury teams across organizations strive to increase their forecasting cadence, improve accuracy and gain better visibility of their cash flows.
The key performance levers of cash forecasting, frequency, and accuracy enable the organization to react appropriately to market fluctuations in order to take adequate strategic decisions. They serve as a catalyst for determining the current state of your organization and its requirements.
For cash surplus organizations, business expansion or investment planning becomes a key driving factor to have accurate cash forecasting reports. On the other hand, for cash deficit organizations, higher frequency forecasts, and accuracy can help them in making key strategic decisions to overcome the situation.
Increased frequency of cash forecasting provides insights into the daily cash movements of organizations, across various time horizons leading to the generation of timely information. As a result, C-suite executives can make informed decisions and receive better strategic counsel
Impact of COVID-19 on the frequency of cash flow forecasting
The advent of COVID-19 has led organizations to significantly increase their frequency of forecasting to counter high volatile market fluctuations.
Though there are some variations, all organizations, from large to small, have changed their approach to forecast cash since the pandemic hit. While larger organizations focus more on maintaining their market share, the small organizations need to stay afloat in the market and deal with liquidity shortages leading them to increase their forecasting frequency.
The objective of the treasury is to pair the forecasting model with the right time horizon for meeting business requirements.
The time horizon of your cash flow forecast
Appropriate frequency & time horizon together ensures that your cash flow forecast serves its purpose and is recognized as a useful tool.
Accurate cash forecasting enables the CFO to make proactive and informed decisions for the organization, as well as provide more specific future growth initiatives.
Accuracy of your cash flow forecasts
Frequency of your cash flow forecasts & it’s typical accuracy
|Accuracy Achieved||Key Takeaways|
|95% or more||
|85% to 90%||
|Less than 80%||
Organizations that have accurate projections are able to eliminate wasteful expenditure and manage total cash flow.
To summarize, organizations have increased their forecasting frequency. They are adopting technologies to utilize data optimally and generate accurate reports, allowing them to have better credibility and build up forecasts to a global level.
More and more organizations are incorporating technologies like APIs, RPA, Artificial Intelligence, etc, which significantly enhances the ability to update forecasts, perform variance analysis as well as provide “what-if” scenarios for short-term and long-term liquidity planning needs.
With Artificial Intelligence and Machine Learning technologies, organizations can perform variance analysis to quickly identify the accuracy of the forecasting and fine-tune it. Variance analysis capability can result in a more accurate and timely forecast for the organization.
The importance of forecasting has become abundantly clear during the COVID-19 crisis. It is key to elevate the importance of accurate forecasting within the organizations. The old models and processes might not suit anymore with so much uncertainty around. Companies must make it a priority to reduce dependency from spreadsheets and deploy technology.
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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.