How to improve cash flow forecasting confidence


Every CFO knows the importance, and challenges, of being able to determine cash position and liquidity to invest for growth. Business decisions on how much of the company’s cash to invest in any given venture require an accurate and intimate understanding of the company’s financial health at that moment and in the near future.

From small business to enterprise, decision making often requires careful consideration of recent financial statements, bank account balance, and the ability to predict cash flow over the coming months or even years.

If we lived and worked in a predictable and slow-evolving world, this would be relatively straightforward. But if the 2020s have taught us one thing, it is to expect the unexpected. A CFO’s role has become ever more challenging as a result – ready to invest to grow beyond the competition, but holding enough in reserve to weather potential risks which may be just around the corner.


The challenges of cash flow management in 2022

As much of the western world emerges from the grip of the coronavirus pandemic, it’s hard to ignore the other pressures faced when trying to return to “business as normal.” Global insolvencies are expected to climb 33% in 2022, according to Atradius.

Unprecedented government spending and quantitative easing, combined with the supply chain crisis and shockwaves from Russia’s invasion of Ukraine, have contributed to inflation in many countries. If businesses negotiate wage and supplier agreements across multiple quarters, with expenses set in advance, a little short-term inflation isn’t a bad thing – relatively reducing these costs over time. However, as inflation climbs into double-digits (as it looks likely to do in many countries) markets can become unpredictable and businesses may need to do more to carefully manage cash inflows and outflows in the longer-term.

The world is already facing a supply chain crisis, shortage of goods, and associated inflation, likely to be further compounded by recent drastic lockdowns in China, a country integral to many supply chains. Business will be lost and won on the ability to service demand as supplies are stretched further. Having a greater insight into cash position enables businesses to act more decisively and capitalize on opportunities, as well as defend against risks from these changing conditions.


Real-time visibility and analytics

With crucial business decisions hanging on the need for insight into financial performance, the closer a business can get to real-time cash position visibility, the better decision making can be. Real-time cash flow insight can determine the amount of cash on the balance sheet and just how far spending can be safely pushed.

If payment delays are detected in real time, remedial action can be taken sooner to bring the cash in. Automation of follow-up actions can reduce the need for manual intervention, but it all comes down to having the visibility of cash flow status to ensure the right actions are taken at the right time.


The value of holistic cash forecasting

Holistic cash forecasting requires combining visibility into cash outflow from accounts receivable (AR) and cash inflow from accounts payable (AP) to provide a more accurate cash flow forecast. Stepping beyond the traditional cash flow silos of AR and AP gives business owners and strategic financial executives a more powerful forecasting tool to inform business decision making.

Nearly three-quarters (74%) of financial leaders acknowledge the need for optimized cash flows to adequately fund business goals, according to “The Future of Finance: 360-Degree Cash Flow Visibility and Control,” a Forrester Consulting study commissioned by Corcentric.

From the same study, 71% say optimizing cash flows to uncover funding for key initiatives is the most important financial-related action to achieve their companies’ top business priorities. About the same percentage (73%) believe enabling holistic cash forecasting would be valuable or extremely valuable to their organizations.

With such awareness of the value of holistic cash forecasting, it may come as a surprise that this capability isn’t always high up the business plan; the study shows that the vast majority (95%) of companies lack a solution and/or service partner for enabling holistic cash forecasting!


Automation for improved efficiency and confidence

It’s not just holistic cash forecasting which the majority of businesses lack. Indeed, 90% of businesses do not have the automated accounts receivable (AR) and accounts payable (AP) functions that are crucial components of a holistic cash forecasting process.

Accounting software and ERP systems may provide a good degree of insight into sales and payments, but automation of AR and AP enables better cash flow insight and forecasting than ever before.

Streamlining and automating AR and AP processes to reduce overheads and manual processing time requires digitization. And it is this digitization which provides real-time insight into present and future cash flow.


Accelerate and guarantee cash flow projections

Holistic cash forecasting through better insight into cash inflow and outflow is all well and good, but in these uncertain times how much faith can you really put into these cash flow projections?

Well, there are ways you can actually guarantee payments – making your projections far more dependable and valuable for business decision making.

Corcentric Managed Accounts Receivable is one such solution. Through a managed service approach, you can accelerate the move to AR automation as an extension of your existing process. Furthermore, Corcentric provides the funding to speed invoice payment, allowing you to set payment to a specific period of time after each invoice is issued.

Shortening payment timeframes drives down days sales outstanding (DSO) and liberates working capital. It’s like the equivalent of suddenly shortening every customers’ payment terms, but without the risk to customer relationships this would incur. Think of the amount of money this can provide critical access to.

Few businesses could reasonably shorten payment terms, especially those who are part of a supply chain with customers needing to purchase and process raw materials or components that are sold as part of an end product. Having high sales volumes is wonderful, but when this ties up too much cash as working capital, cash flow suffers and business can falter. Many businesses face this quandary.

Corcentric Managed Accounts Receivable provides a way to liberate this working capital and improve liquidity. The program comes with a non-recourse agreement that removes the risk of payment demands in the future if customers default on their payments. That means your organization can shorten DSO and liberate working capital with the confidence that this cash is not contingent on whether customers do or don’t pay.


Get the whole picture on holistic cash flow forecasting

You can’t manage what you can’t see. It’s something we say a lot, because it applies to all areas of your company. When it comes to the health of your business, nowhere is this more true than regarding cash flow. Real-time visibility gives your financial and executive teams the situational awareness they need to make informed, considered, and confident decisions – decisions that make the difference between leaders, laggards, and losers.

If you’re ready to see what you’ve been missing in your cash flow, accounts receivable, and accounts payable picture, get in touch with Corcentric today. We’ll give you the big picture.

Download the study The Future of Finance: 360-Degree Cash Flow Visibility and Control to find out more.