Cash flow forecasting is critical in determining the financial health of any business. It helps with effective cash flow planning and ensures that a business does not run out of reserves and has enough cash to meet daily expenses. However, with legacy cash forecasting software and traditional forecasting methods, businesses face numerous challenges, such as manual uploading of spreadsheet-based projections into treasury management systems, no automated forecasts, and reliance on a single, inflexible machine learning (ML) method, regardless of the specific forecasting needs.
To solve this, businesses need robust cash flow forecasting software that makes the best use of AI-ML and lets them perform critical forecasting functions like scenario and variance analysis seamlessly and allows building custom dashboards and templates for enhanced projections. Here are five ways businesses can unlock accurate and enhanced cash flow forecasting.
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Creating daily cash forecasts with Auto-ML forecast models
While monthly and yearly cash flow projections aid in long-term strategic planning, daily cash forecasts help achieve the granularity and timeliness critical to effective cash management. They enable businesses to respond quickly to changes, optimize operations, and mitigate liquidity risks, thereby leading to greater financial stability.
Incorporating auto-ML cash forecasting allows businesses to enhance their cash planning, leading to more accurate predictions and increased cash prediction efficiency. It leverages all prior transactions in each cash flow category to develop a forecast. Every time the forecasting process runs, the cash forecasting software automatically reviews and picks the best-fit model with the highest accuracy from hundreds of models and parameter permutations. For categories with lower transaction volumes, such as tax or debt payments, businesses can import schedules and use Excel-like formulas to generate forecasts automatically.
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Build hyper-personalized cash forecasting templates for enhanced projections
Most legacy cash forecasting software comes with static, outdated, and single forecasting models that often fail to capture their unique cash flow dynamics, leading to inaccurate predictions and financial mismanagement. Moreover, these models are fit for only certain types of cash flow categories, resulting in missed opportunities, unnecessary borrowing, or yielding irrelevant insights that don’t support critical planning.
Businesses need a hyper-personalized cash forecasting template that not only empowers them to enhance the cash management process but also brings a highly scalable cloud database that can store millions of records. Cash flow forecasting tools like flexible forecast template builders help businesses handle data and build forecast templates using a familiar Excel-like or no-code interface. They also define the structure of cash flow categories for each template, set formulas or models in each cell, and can be configured based on various dimensions such as legal entities, regions, countries, etc.
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AI-driven cash forecasting tool specializing in accounts receivable
Most traditional cash forecasting software does not support advanced AI, especially for AR and AP cash flow categories. AR is the most challenging category to predict, so these tools reflect no native AR expertise and have no experience with different drivers to improve forecast accuracy. Moreover, these cash forecasting tools are not designed to quickly process and perform complex calculations on large amounts of ERP data.
An AI-driven AR forecasting solution helps businesses get highly reliable and accurate forecasts of the most complex and hard-to-predict cash flow categories. It uses customer-specific AI models built to improve upon the AutoML accuracy rate for the AR category. These custom AI models work based on the availability and quality of data and use customer invoice information, sales order information, promises to pay, credit memos, debit memos, deductions, etc. For example, to better forecast cash flows from AR in the US, we pull invoice data from the ERP and predict customer-specific payment patterns instead of just using bank data. This creates a better bottom-up estimate of cash for AR in the US for the next 45 days.
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Robust scenario analysis with scenario builders
The lack of advanced scenario analysis often makes it hard for businesses to assess the impact of changes in cash inflows, outflows, or external factors like foreign exchange rate shocks. Moreover, businesses are unable to understand cash flow dynamics, which results in poorly informed decisions.
A good cash forecasting software comes with robust scenario builders that help businesses create what-if scenarios on top of a base forecast with an easy-to-use scenario builder interface. They can change amounts, percentages, or timing of cash inflows or outflows or forex rate shocks and analyze the impact each scenario has on various cash flow categories.
Additionally, the solution lets businesses save a version of the forecast or scenario at a point in time as a “snapshot” and access it at any time in the future. Businesses can compare side-by-side snapshots with differences highlighted in a visual “heatmap.”
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Conducting accurate variance analysis
Accurate variance analysis is crucial as it helps businesses measure performance, make informed decisions, control costs, and continuously improve their budgeting and forecasting processes. However, a lack of robust variance analysis hinders businesses’ ability to learn from previous forecasts and leads to inefficient cash management. It also makes it difficult for businesses to identify trends or patterns in forecasting over time.
AI-driven cash flow forecasting software brings variance analysis features, enabling businesses to view the historical forecasts and their variance from the actuals at the cash flow category level. Businesses can also track forecasts vs. actuals over time for any cash flow category and drill down to understand the changes in variance over time using the variance grid. This allows users to make better borrowing and investment decisions.
Boost your cash flow projections with advanced, AI-led cash forecasting software
To ensure adequate liquidity and accurate cash flow planning, businesses must drive cash management with enhanced cash forecasting rather than treating the latter as a mere afterthought. In addition, today’s higher interest rates raise the costs of poor investment and borrowing decisions relative to the past, which makes frequent, reliable, and accurate cash forecasts more important than ever. Also, new big data and AI/ML technologies allow daily, accurate cash forecasts for the first time in history.
The right cash flow forecasting software leverages advanced technologies such as AI and ML and integrates with banks and ERPs to get AR/AP data. It also improves ML prediction rates and enables treasurers to achieve accurate, real-time cash forecasting. Businesses can forecast cash into any category or entity on a daily, weekly, and monthly basis with up to 95% accuracy, perform what-if scenarios, and compare actuals vs. forecasted cash.
