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Secrets of Cash Management Excellence – Part 2/2: Cash Visibility

Secrets of Cash Management Excellence – Part 2/2: Cash Forecasting

Cash forecasting is essential for discerning future cash flows and cash position for an organization. Accurate cash forecasting is crucial for any treasurer to ensure their organization’s liquidity come what may. In Part 1 of this blog series we covered the importance of cash visibility for better cash management.

In this blog, part 2 of the series, we will examine how to ace cash forecasting, particularly by leveraging sophisticated treasury software solutions that provide powerful visibility and forecasting functionality. To determine the future cash flows, it is absolutely mandatory to know the current cash position of the organization. Cash forecasting helps refine liquidity decisions and eradicate cash flow shocks in the future that could leave your organization scrambling for funds.

Why Is Cash Forecast Important?

An accurate cash flow forecast is a powerful instrument to determine the requisite capital needed to sustain and grow the business. This helps treasurers makes provision for tackling future crises and unanticipated expenditures on account of market uncertainties. It also provides foresight for coping with ad-hoc fiscal challenges and predicts cash shortages in the future. Forewarned is forearmed and treasurers can take steps to secure funding and reduce liquidity risk in these scenarios.

However arduous calculating future cash flow might seem, having an accurate cash flow projection is crucial even for organizations deemed profitable. Remember that profits do not necessarily mean available capital. Let’s try to understand the concept in more detail with the help of an example.

Say for the current month, your organization’s total sales amounts to $80,000. Monthly expenses (payroll, taxes, and other fixed costs) were calculated to be around $ 60,000 for the same month. Hence, for the current month, your company has earned a profit amount of $20,000.

However, due to an unfortunate situation one of your clients defaulted on payment of $30,000 for this month. Hence, your outstanding receivable for the month is $30,000. As cash inflow is $50,000, your company still lacks $10,000 to meet expenses, in spite of an anticipated profit. This leaves the organization in a tricky situation to meet those expenses. If this situation continues for the following months, it would be troublesome to maintain a steady operational flow for long. With effective cash flow forecasting in place, you can anticipate such shortages and prepare contingency plans such as a cushioned savings account, protecting overdraft, or a line of credit. In the best case scenario, the forecast could help you take preventive measures to completely avoid a shortage of available cash.

Prioritize Data Analysis

A mindset shift that prioritizes data analysis rather than too much effort on data collection is necessary to achieve accurate cash forecasts. In general, cash flows embody the following: Purchase orders in the e-procurement system, unmapped customer invoices in Accounts Receivable, unapproved supplier invoices in the purchase invoice workflow. The organization is aware of such cash flows in advance, before they are debited or credited to their bank account. This sort of data collection should be automated so that more focus and effort can be spent on data analysis.

Integrated cash forecasting software can be implemented to automate data collection from various sources. In this process, files are transported from myriad of sources to a single, centralized location and then imported to the forecasting software daily or weekly. However, note that that only impromptu cash flow data like taxes or payroll should be collected manually.

Advantages of the Forecasting Software

The forecasting software is capable of delivering value-added services apart from data collection to streamline the forecasting process, consequently saving time and cost.

The software can identify discrepancies such as missing bank statements, mismatched opening and closing balance, etc. It is capable of sending automatic reminders to the entities for forecast confirmation. The software can be engineered to a repeat mode for recurring transactions. The solution also keeps track of all the bank holidays and excludes them from the forecast. The software can also help with standardizing and locking multipliers (billions or millions, etc.) for accurate cash forecasting. In case of bulk transactions, errors are commonplace, which can be efficiently mitigated with the roll back functionality of the solution.

Best Practices for Accurate Cash Forecast

While forecasting, consider following best practices through reports like:

  • cash flows per business entity
  • cash flows per cash pool
  • cash flows per bank

In order to focus on users’ requirements, forecasts should follow a more granular approach in terms of narrowing it down to row/column levels or sorting various currencies in a single graph.

Preparation of forecast vs. actuals report helps determine the fluctuations in the cash forecast. This report serves as the basis for continual refinement of the forecasting process. Last but not the least, share reports with stakeholders through convenient options like email or a dashboard button. The valuable insights from these reports help with more accurate forecasts. The convenience of easily accessible reports also speeds up the process and decision-making.


Efficient cash management requires meticulous planning and preparation. Well-organized and informed cash management requires both cash visibility and accurate cash forecasting. Both of these are easily accomplished with the latest treasury software that surmounts many of the typical challenges in cash management.

If you’re looking for a solution to enhance cash management with powerful automation of the tasks and processes involved in cash management, V-Solve can assist you. Our next-gen, cloud-based solution T-solve, provides powerful cash and liquidity functionality, including cash flow forecasting capabilities. Please contact us to learn more and we would be delighted to understand your business challenges and help you overcome them.

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