Multi-level forecasting: treasures at their finest!
Many CFOs are still dealing with the aftermath of the pandemic. Some of them also have more immediate concerns in a particularly tense global geopolitical context. In both cases, it is essential for organizations to completely rethink their cash flow management processes and find ways to be as accurate as possible in their financial forecasts.
Credit collection management has been a priority for finance departments in many organizations across all industries. The survival of small and medium-sized businesses depends heavily on the amount of cash they have in order to pay their bills, their employees and maintain good relations with their entire business network (partners, suppliers of goods and services, etc.).
Therefore, they need to ensure that they not only have accurate, real-time visibility into their own cash flows, but that they also have a precise understanding of how certain third parties with whom they have business relationships behave and respond in given contexts.
Forecasts & Simulations
Let’s be clear, any cash flow forecast is systematically wrong! We can never know for sure if and when a given entity will pay its bills. If it will ask us for more time to pay – when it is expecting payments itself – and if it will negotiate new business terms…
The intelligence of the modern treasurer, supported by the right tools, lies in his or her ability to generate forecasts, which can also be described as simulations or scenarios. These need to be associated with due and expected payments, but carefully categorized according to additional data associated with the debtors.
These integrated data come from heterogeneous systems and collaborative solutions. They are being analyzed to define the reliability of entities, and, from a multi-dimensional and multi-level perspective, they ultimately allow the treasurer to establish cash flow forecasts for different horizons: short, medium, and long term.
Beyond centralization & process automation
This intelligent, agile, multi-tiered approach, carefully integrated with the organization’s financial processes, is supported by systems built to address a range of digital transformation challenges.
Driven by a real necessity to solve business problems, CFOs are at the very core of their company’s evolution toward excellence. They will push for innovations that go beyond the obvious benefits – to the organization as a whole – of centralizing data or the even more obvious benefits of automating low-value tasks.
Cash flow forecasting with a “time” approach, a “certainty” approach, an “entity” approach, and a “source” approach, as we have just described, is absolutely crucial for business success. It is also a real differentiator for small and medium-sized businesses that may not have the same financial resources as large companies but, with the implementation of an affordable treasury management solution, can compete in terms of business intelligence.
It is often said that cash culture is not always prioritized on this side of the Atlantic. But it’s time for this to change! Because whether we like it or not, money will always be the lifeblood of the business. Now more than ever, having visibility and advanced options for forecasting corporate cash flow is a real competitive advantage in any industry.