Why Companies Automate Cash Forecasting

Tom Rooney - May 25, 2020
Cash Forecasting Methods

Our experience has shown us that businesses often decide to automate the cash forecasting process when it becomes apparent that their existing methods can no longer support their objectives.

This is not a decision arrived at lightly and, by the time most companies begin the search for a suitable cash flow forecasting software, they have already identified specific outcomes they wish to achieve through automating some, if not all, aspects of their forecasting process.

From the perspective of baseline forecasting, automation reduces risk and error while increasing accuracy and efficiency, but a more specific definition of benefits is usually required to support the business case for adopting a new software solution.

CashAnalytics has helped automate the forecasting processes of companies globally, so we know the full extent of what can be achieved by choosing to use a specialized cash flow forecasting tool for the automation of this vital component of cash management.

In our experience, however, there are four particular areas that we have consistently seen supporting the business case for automated cash flow forecasting using software.

1. Reducing Debt Levels & Interest Costs

Businesses with a global presence generally have multiple banking partners, bank accounts and business units, so gaining visibility over consolidated actual and forecast cash positions is an often onerous task. This, in turn, makes it very difficult to identify areas of the company where there might be excess cash that can be used to reduce external borrowings.

Automated forecasting facilitates the rapid collection, consolidation, modeling, and analysis of cash forecast data, allowing a reliable view of the future to be quickly established, thus putting the treasury and finance teams in a position to safely redeploy any current or future available liquidity to reduce outstanding debts or interest.

2. Identifying Problems Before They Arise

It is no exaggeration to say that, in this current economic climate, the importance of effective liquidity risk management has never been more evident. Cash forecasting is a key tool in this process as it provides the view of the future needed to detect possible liquidity shortfalls.

A robust automated 13-week cash flow forecast, for example, will provide full visibility over group-wide cash levels until at least the subsequent quarter-end. With instant recourse to the most current data available, as well as real-time visibility over all short to medium-term cash positions, treasures can easily identify and address any potential liquidity risks before they become genuine problems.

3. Robust Investor & Management Reporting

A fully automated software solution allows businesses to automatically generate high-quality reports as required. Moreover, through customized KPI dashboards, an automated process will provide clear visibility of forecast figures for total cash and net liquidity over designated timelines.

The level of reporting flexibility automation allows is also significant. For example, all information can be analyzed at the touch of a button, so dashboard data is easily rolled up into headline KPIs and sent to the CFO, who is able to drill right down to line-item granularity.

There is also the scope to fully amalgamate daily, weekly and monthly cash and liquidity reporting processes into a cohesive framework. Thus, reports on critical indicators such as cash flow, consolidated bank balances and funding requirements, are always instantly available to senior management and key stakeholders.

4. Supporting Cash Pool & Business Unit Funding

Cash forecasting sits at the center of an effective and efficient cash pool and business unit funding strategy. Being able to clearly understand the future cash needs of the business allows head office treasury and finance teams to plan the funding of these requirements accordingly, providing the cash either directly to the business or via cash pools.

Companies who tightly manage cash and liquidity with the goal of ensuring that cash flow is always working will analyze the funding needs of the business on at least a weekly, if not daily, basis. The process of forecasting at this frequency can be time-consuming and therefore automation of the process can yield significant time savings, while allowing for the consistent production of high-quality forecasts.

Both the time saved and the high-quality data produced can be invested in providing funding to business units and cash pools in the most efficient manner possible. This will ultimately ensure that cash is put to the best possible use and that funding costs are always minimized.

Achieving Cash Management Objectives

Ultimately, automating the forecasting process ensures companies can access and analyze their cash and liquidity data with greater speed and ease.
It reduces the administrative burden and the potential for error and, subsequently, allows treasurers and financial planners to focus more of their time on the high-value, analytical activities that are required for a business to achieve its cash and liquidity management objectives.

CashAnalytics is a cash forecasting and liquidity planning software solution that provides businesses with real-time, group-wide visibility over their current and future cash positions.