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Cash Forecasting, coming of age...



November 2020

Forecasting is one of those areas that treasurers either like or loathe. If done well it is profitable activity but if done badly it can cost money. There are now a multitude of cash forecasting tools available that can help the process and ensure that it is done well. These range from cash forecasting modules within Treasury Management Systems to standalone or Best of Breed cash forecasting systems such as Cashforce, Nomentia, Cash Analytics and TIPCO. These systems have been maturing over the years with new functionality being added making them really powerful. If you haven’t already looked at them maybe now is the time to do so.

The advent of Artificial Intelligence (AI) tools has not escaped the attention of cash forecasting developers. Cashforce, for example, has had an AI in component for a few years now. DNA Treasury follow all the major players and have welcomed developments in this area. CashAnalytics have recently launched its SmartLedger module which we had a quick preview of its functionality.

SmartLedger learns from historic data and applies these learnings to current data which, when combined with bank statement information, makes intelligent forecasts. So, the system in effect learns from past behaviour and predicts future trends.

Of course, this is only one component of an accurate forecast but being able to use historic trends in this way is really useful. In practice what this means is that you can get the system to automatically analyse historic customer payment patterns to create an indication of customer behaviour. Not only will this help with future cash forecasting but also improve working capital as it will identify payer behaviour patterns, for example regular late payors. With such information to hand you can create scenarios of your financials and views of how they might impact your future cash positions. This gives you better visibility and control of your cash.

On the subject of simulation, cash forecasting software really comes into its own when you are able to simulate possible scenarios. This means being able to model different scenarios by changing assumptions and seeing the impact on cash flows. Some best of breed forecast solution providers are working on this and it will be interesting to see the output of the developments.

Good cash flow forecasting needs to be reliable and accurate. The reliability part of the equation is very dependent on where and when the data is derived and who sends it. This is very much an internal company process but providing the right tools for it to happen are crucial. Accuracy is a different matter and technology can really help with task of discovering how good the quality of the data is by how close to reality it was. In other words, working out the variance between forecasted data and actual data. In addition, knowing who the best and worst forecasters are allows you to put plans in place to improve the accuracy. It is pleasing to see that some developers are now focusing on this as well.

With all the above developments we think it is fair to say that finally cash forecasting software is coming of age. There are some exciting times ahead and we will continue to follow all the major players in this space and let you know what is happening.

If you would like further information, then please contact us.

david@dnatreasury.org


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