Why you need continuous cash forecasting in your financial toolbox

April 29, 2024 | 3 minute read
Wayne Heather
EPM Product Marketing Director, Oracle
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Whether an economy is thriving or facing challenges, effectively managing cash flow is critical to the success of any business. Long-range cash flow forecasting has its place in strategic planning, but it is continuous cash forecasting provides the tactical insights businesses need to steer clear of cash crises. Having an effective cash flow forecast can make or break a business in a competitive market.

A recent global study[1] indicates that few treasury departments believe they have the adequate systems to fulfill this need even though most of them are placing Cash and Liquidity Management as a top business priority. Presently, most of the cash forecasting in treasury departments is still reliant on Excel spreadsheets.

Corporate treasury plays an important role in contributing to the bottom line, and the more effective they are with cash flow management, the more cash they will have to run their business. The current state of many cash forecasting methods in spreadsheets and legacy tools is inefficient. Moreover, the pattern of inaccurate forecasts can lead organizations adopt highly conservative approaches which result in significant amounts of underutilized cash remaining idle. Enhancing accuracy and confidence in cash flow forecasts enables treasurers to effectively channel surplus cash into reinvestments for the business.

Improving short-term cash forecasting offers a huge potential.

Why is continuous short-term cash forecasting significant to your business?

Cash forecasting typically concentrates on predicting cash inflows and outflows over the near term, say 1 to 6 months. It can help businesses identify periods of negative or low cash flow and or due to lack of confidence in cash positions, miss opportunities to invest cash. Continuous cash forecasting is done frequently, even daily, or weekly, to give companies time to respond to expected cash shortfalls.

This is why not being very effective with cash forecasting can be a massive risk for organizations. Many companies only do cash forecasting once a month. Imagine there is a problem on day 5 of a month on cash forecasting, they won’t know about that until day 30 of the month. The delay in information can be a risk on taking timely action that could otherwise be prevented.

While long-term forecasts are important for planning, continuous cash forecasting serves a different but critical purpose in a treasury department’s financial toolbox. It provides the detailed, timely insights companies need to actively manage cash and avoid disruptions to day-to-day operations.

The challenge of short-term cash forecasting

There are several factors that make cash forecasting uniquely difficult. Mostly the short time horizon, amount of level and accuracy of data required, the difficulty of predicting revenue and expenses over a short period all compounded by relying on insufficient technology like spreadsheets to do this. This means it is near impossible to automate data collection from all these sources leading to very inefficient processes.

Finance teams often spend hundreds and in some bigger organizations can several hundred hours preparing cash forecasts. This makes cash forecasting more of a task than a value add activity, making it impossible to efficiently deploy cash in the business.

In the next blog, The Top 5 Critical Considerations for Navigating Continuous Cash Forecasts, we will cover off these challenges in detail and look at how they can be addressed.

It is important to note, that while continuous short-term cash flow forecasting is challenging, the payoff is immense if you can get it right. It gives businesses the agility to respond to expected cash shortfalls before they turn into bigger problems. By dedicating resources to accurate short-term forecasting, businesses can avoid potential disruption and make smarter financial decisions.

Learn more about Predictive Cash Forecasting.

1. PwC Global Treasury Survey, June 2023

Wayne Heather

EPM Product Marketing Director, Oracle


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