Top 5 challenges of navigating continuous cash forecasting

May 20, 2024 | 3 minute read
Wayne Heather
EPM Product Marketing Director, Oracle
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Read the previous blog in this series, Why you need continuous cash forecasting in your financial toolbox.

Accurate cash forecasting remains an elusive target for finance teams. Treasury professionals continually rate cash forecasting as an ongoing challenge, with a low satisfaction rate for the highly manual process. But why does mastering this critical business operation prove so difficult?

The 5 challenges of cash flow forecasting

Several inherent factors contribute to the challenges of short-term cash forecasting, making it a trying exercise for most businesses. Let's dive into some of these challenges:

  1. Granular data requirements from siloed applications: Creating more accurate cash forecasts requires granular and accurate cash inflow and outflow data. However, generating meaningful cash forecasts on a continuous basis is nearly impossible when this crucial data is scattered across the organization in disconnected systems obscuring visibility into cash positions. Many finance and treasury teams use spreadsheets to collect this data, but this is a very time-consuming effort, often leading to hundreds of hours spent trying to collect, collate and aggregate the data to use for cash forecasting. This leads to a delay in cash forecasting, sometimes rendering cash flow forecasts not fit for purpose and can lead businesses to park surplus cash in silos to ensure availability instead of utilizing it efficiently.
  2. Frequency: Compounding the previous data challenge, is the frequency at which cash forecasts need to be performed. Depending on the organization, short-term forecasts often require daily or weekly updates to stay on top of new developments. Cash flow fluctuations stem from customer payment variability and differing vendor terms across customers and suppliers. Granular visibility into these dynamics can surface potential cash positions and opportunities like negotiating favorable customer payment terms to boost inflows. This means your cash forecast needs updated information from different systems to accurately reflect cash inflows and outflows. Therefore, standard monthly or quarterly forecasting will not suffice as you will still not be able to deploy your cash efficiently in a timely manner.
  3. Poor technology utilization: Reliance on basic spreadsheets for short-term cash forecasting persists in many companies, risking data gaps, manual errors, and inefficiencies. So, imagine you collect data from around the world from the various controllers, and you try to aggregate that, and that gives you a view on cash. Cash doesn't necessarily just flow right out of your systems. So again, systems aren't supporting cash forecasting. In some companies finance spends hundreds of hours preparing cash forecasts, making it impossible to do on a frequent basis. This does not give you a clear and confident view of your cash available and this can lead to suboptimal cash utilization, resulting in missed opportunities.
  4. Collaboration across the business: The nature of cash forecasting is collaborative, needing input from various stakeholders, including treasury, controller’s office and business units all interacting over the same cash data coming from different sources. For diversified, decentralized businesses, coordinating required cash positions across multiple entities is even more challenging.  This is compounded further when using unsuitable technology, as mentioned above, to try to create cash forecasts on a timely basis. Frequent manual data exchange complicates forecasting, resulting in unnecessary cash buffers and suboptimal cash management.
  5. Small room for error: The short time horizon for short-term cash forecasting amplifies the impact of inaccurate projections. Cash flow deficits rapidly jeopardize companies financially, affording little margin for error in forecasting. This is why being able to prepare accurate cash forecasts at a frequent cadence so you can easily be alerted to potential cash issues before they occur will help you be more efficient at the way you deploy and invest your cash.

It’s clear that navigating cash forecasting is no simple endeavor, but the benefits can be revolutionary for a business when done right.  At Oracle we have combined our years of experience in delivering innovative forecasting solutions with predictive planning and AI to completely transform cash forecasting. We recognized that AI has the potential to completely transform cash flow forecasting by automating data aggregation, predicting cash positions, detecting hidden patterns, and providing intelligent insight into the factors that are driving your cash flow.

Wouldn’t it be great if your team could eliminate thousands of hours by automatically compiling cashflows and external data like bank balances, investment performance, and loan obligations, in real time? What if you could continuously predict future liquidity using patterns identified through machine learning, complementing your team’s human judgement to mitigate shortfall and optimize cash?

In the final blog of the series coming soon, we’ll learn how to leverage AI to transform cash forecasting.

Learn more about predictive cash forecasting.

Wayne Heather

EPM Product Marketing Director, Oracle


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Why you need continuous cash forecasting in your financial toolbox

Wayne Heather | 3 min read

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Transform cash forecasting with AI

Wayne Heather | 3 min read