Cash Forecasting Automation Benefits | Payference

Forecasting cash flow is a critical part of financial planning for any business regardless of its size. It allows businesses to anticipate and prepare for upcoming expenses and make informed decisions about how to best use their available resources.

While cash forecasting with manual processes is still common practice in many small and mid-market businesses, it’s time-consuming, inefficient and often inaccurate. That’s why cash forecasting automation is something you should consider if you want to:

• Improve your forecasting accuracy
• Streamline your AR and AP processes
• Boost productivity in your finance department
• Gain visibility into your cash and accounts
• And have more flexibility.to make informed decisions at a moment’s notice

In this blog, we’ll cover why cash forecasting is important, some of the main benefits of cash forecasting automation and offer some best practices for using cash forecasting automation. As a bonus, take a look at this case study that shows how an outsourced accounting and financial intelligence company embraced innovation to generate savings and insights for its clients.

Why is Cash Forecasting Important?

Cash forecasting is the practice of predicting the future flow of money in and out of a business. Businesses look at both future revenues and expenses to create a forecast that can be used for making financial decisions. Cash forecasting plays an important role in long-term planning, as well as in day-to-day decision making. 

Cash forecasting can also be used as a tool for estimating and validating long-term business strategies. By accurately predicting your business’s future cash flow, you can plan for both expected and unexpected changes in the market and the economy.

The Benefits of Cash Forecasting Automation

Cash forecasting automation offers a number of benefits for businesses, including increased accuracy, streamlined processes, higher productivity, enhanced visibility into cash and disparate accounts and flexibility. Before getting into the cash forecasting benefits, here’s an abbreviated list of some of the steps your finance team must take to manually prepare.

1. They have to review sales and inventory data
2. Make adjustments for seasonal fluctuations
3. Map the cash conversion cycle
4. Estimate overhead costs that change month-to month, such as utilities and payroll
5. Account for payments due during the forecast period.

Automated cash forecasting simplifies all these steps. When the entire process is automated, your finance team can quickly create a forecast, make adjustments in real-time and enjoy improvements in the following areas:

Accuracy

Cash forecasting automation provides more accurate forecasts than manual processes can produce. Solutions that combine automation with AI technology use data from previous cash transactions to create more realistic projections of future financial performance. Automation also helps eliminate human errors, as well as discrepancies caused by outdated processes. 

Efficiency

Second, cash forecasting automation improves efficiency by reducing the amount of time and human touch points needed to generate forecasts. Cash forecasting automation tools streamline the process by enabling data to be stored and shared in real-time. As a result, businesses can more quickly identify areas of financial risk and take action to minimize it. 

Visibility

Another reason to consider cash forecasting automation is that it significantly increases visibility into your cash flow. Automation tools can integrate data from across the business, including accounts receivable, accounts payable, sales, and purchases. This allows you to see the effects of different financial decisions in real time and makes cash forecasting more effective.

Productivity

Think about it. You didn’t hire professionals to do data entry, but that’s how they end up spending a lot of their time–completing boring, repetitive tasks. Automation eliminates that part of their job, freeing them to work on more strategic initiatives that add value to your organization. The result can be a positive impact to your bottom line and a lift in their job satisfaction.

Flexibility

Most of the time your finance team creates cash forecasts for a specific period, quarterly or end of month. But what about the times that it would have been helpful to have a forecast at a moment's notice? You had an unexpected expense and needed to know if you had the funds to cover it. Or an opportunity presented itself, but you were unsure if you should jump on it because you didn’t have the financial information you needed. With cash forecasting automation, you can get the information you need in just a few clicks.

How to Choose the Right Cash Forecasting Automation Tool

Automating your cash forecasting process requires selecting a cash forecasting tool that is appropriate for your particular business. This is one time when size definitely matters. Small and mid-market businesses rarely need all the functionality that an enterprise level business needs. And that’s okay because those solutions are most likely not within their budget. That being said, you do want to go with a platform that makes it easy to scale when you’re ready.

When you’re comparing different cash forecasting automation platforms, look for one that easily integrates with your existing ERP/accounting systems. Make sure it has an intuitive interface and that the provider offers training and ongoing support. This includes learning how to input data correctly, as well as understanding how to analyze and interpret the tool’s output. 

Best Practices for Cash Forecasting

In order to ensure that cash forecasting automation is used correctly and efficiently, it’s important to establish best practices for forecasting.

• Regularly review financial statements and statements of cash flow to ensure accuracy of forecasts 
• Use a combination of top-down and bottom-up forecasting techniques
• Update forecasts on a rolling basis as new information becomes available
• Ensure forecasts incorporate both current and future data
• Set goals and criteria to benchmark cash flow performance
• Track accuracy of forecasts 

Conclusion

Cash forecasting automation can play an important role in improving the financial performance of any business. With the right automation tool, you can benefit from more accurate forecasts, greater efficiency and visibility, higher productivity and increased flexibility.

Payference is an all-in-one cash management tool that was created with the needs of small to mid-market businesses in mind. If you have questions about cash forecasting automation or would like to see a demo, reach out today!