You Are Not Alone: Common Problems with Cash Flow Forecasting


With higher interest rates and inflation, we've all been reminded again and again how important cash is. Along with a reinvigorated focus on cash, there has been a renewed sensitivity to cash flow forecasting. In the past, there were some minor penalties for not being super accurate, but now there are real costs and consequences to not having timely and accurate cash flow forecasts. What used to be just a fiduciary duty is now a strategic initiative, which has made finance a more important part of the organization.

We at Tesorio spend a lot of time talking to CFOs, and it’s clear that accurate and timely cash forecasting is more important than ever in these uncertain times. More than a few of our customers have told us they are now updating and reporting on forecasts weekly. Our discussions have also revealed that there is a set of forecasting issues that are common and becoming increasingly painful across nearly all finance teams.

On paper, achieving an accurate accounts receivable forecast seems straightforward. Simply gather data from across the business and then collate, harmonize, and coherently present the data to the CEO, board, or team. Herein lies the problem. As finance professionals know from experience, calculating accurate cash flow forecasts is both challenging and time-consuming. A lack of standardized data and an overreliance on manual effort can raise questions about forecast integrity.

Difficulties with Data Collation

Accurate cash flow forecasting relies on finance having timely access to multiple data points. But to access this data, finance professionals need to overcome multiple hurdles:

  • Data collation is typically time-consuming. Data is sourced from many different systems, both internal (CRM, ERP, Payroll, Tax) and external (bank cash management platform). Without an automated feed from these systems, forecasters need to capture the required data manually - an activity that takes time and is error-prone.

  • The status of the data varies. Forecasts rely on a combination of certain, predictable, and potential data. To maximize each forecast's accuracy, the forecaster must understand the status of all data being used and that this status changes (for example, when a forecast customer payment is received).

  • Data may be double-counted or missed because different systems are used to source the data. For example, a closed-won deal recorded in the CRM system (a predictable cash flow) should result in a cash receipt at the bank (an actual or certain cash flow). But if the cash receipt is not efficiently reconciled with the CRM, that closed-won deal may be included in the forecast twice. On the other hand, if the sales or procurement teams are slow to update their systems, future cash flows may not feature in the forecast.

Difficulties with Data Processing

Collating data is only the first step toward developing a meaningful forecast. Before the forecast can be presented, the data needs to be processed – an often tortuous procedure, for two reasons:

  • Data lacks standardization. Because data comes from multiple sources, they may need to be translated into a consistent format before the figures can be manipulated and analyzed.

  • Forecasting tools can cause errors. Many organizations still find it easier to forecast from a spreadsheet. But links can break, and equations accidentally amended, resulting in inaccurate forecasts. And, if there are weaknesses in the spreadsheet, it will be difficult to identify the reasons behind any variances between forecast and actual positions, rendering future forecasts ineffective too.

Problems Lead to Outdated Forecasts

Collating and processing aggregated historical data to produce ‘timely’ cash flow forecasts can be painful and take time. Frustratingly for the finance professional, this means the cash forecast can be out of date even before it is calculated. Outdated forecasts lead to suboptimal decision-making, and in organizations where knowledge of cash is critical to business development, poor forecasting can be disastrous.

There is A Way

Yet, companies already have the data they need to create accurate forecasts. In the past, it was hard to get to the data in real time and make predictions that let companies make strategic decisions based on the most recent information. The answer is to utilize an A/R tool that provides you with a single daily workbench for predicting, tracking, strategizing, and forecasting your cash flow. By automating access to the data across all arms of the business and providing greater visibility and transparency of data, companies will be better placed to anticipate and address issues as they arise. It will also make it possible to track cash in real time because it will automatically pull data from all the different sources.

Going even further, an A/R tool can triangulate your forecast by enabling you to look at it from multiple perspectives: based on the due date, calculated by the promise to pay date, or even leveraging AI to calculate pay dates based on unbiased historical data.

Tesorio is here to help you get started on the road to more accurate forecasts with less effort. Contact us today to discuss automating your cash flow forecasting and A/R collections functions.