Cash Flow Forecasting ERP Software Quick Reference

Posted by Gerry Poe


ERP is your Quick Reference Cash Flow tool that may be overlooked as a cashflow forecast. To effectively manage the company funds, it is important to know your future cash flow position.

What is Cashflow Forecasting? Cash flow forecasting is the process of predicting cash flow (perhaps on a period-by-period basis) for managing liquidity needs (Wikipedia: In accounting, liquidity (or accounting liquidity) is a measure of the ability of a debtor to pay his debts as, and when they fall due. Usually expressed as a ratio or a percentage of current liabilities) and for investment/spending control. An accurate forecast provides the investment decision-maker with information necessary for making true investment decisions.

A good cash flow forecast should answer these questions:

  • How much cash is available?
  • When will it become available?
  • How long will it be available?

Building a good cash flow forecasting model, usually, takes time and effort. Are the benefits greater than the costs? Understand this is an important prerequisite to understanding the benefits of cash flow forecasting.

Benefits include:

  • Improved investment earnings
  • Ensure liquidity
  • Identification of any cash flow shortages

Improved investment earnings and ensured liquidity go hand in hand. If you do not know when funds will be needed for disbursements, (paying your bills) your tendency will be only to hold investments with exceptionally short maturities (lacking foresight). Ensuring that you will be able to meet your payment obligations – but to get that liquidity, investment yield is normally given up (in an upward sloping yield curve environment.) If you can predict when funds will be needed, you will still be able to ensure liquidity, and at the same time, improve investment performance by taking advantage of longer maturities in an upward sloping yield curve environment.

Another benefit of cash flow forecasting is that it can help identify any periods where you may have a negative cash position requiring some form of short-term financing.

The type of forecast you undertake will, in part, depend on the time and resources you have available to commit to the program and the benefits to be received. For the most part, building cash flow models that provide you with monthly estimates (of your cash position) will be the norm. But some governments may need weekly estimates, and very large investment portfolios may need daily estimates. The forecast timeframe chosen should be based on the time and resources available.

Business Cash Flow Software for Accurate Cash Flow Forecast and Analysis

For small to mid-sized organizations, “cash is king”. How do you know if you can fund a particular project? How will you know when it's time to borrow money or extend your line of credit? What’s the impact on your receivables if there’s a delay in a contract?

Due to the complexity of developing a cash flow budget in Excel, many companies opt-out of preparing one at all. Or, if they’re motivated enough to do it, they’ll forecast receivables and payables using “averages” or “guestimates.” What they’re missing is the ability to understand the financial health of the organization to support future expansion and growth, and that is where Budget Maestro's cash flow budgeting and forecasting capabilities can help.

The cash flow budget is too important to get wrong or make a miscalculation. Budget Maestro’s dual-journal entry methodology lets you easily pre-define your A/R and A/P schedules, so the system automatically calculates the transactions for each line item of the budget or globally. This ensures that the Balance Sheet side of your revenue and expense transaction are recorded appropriately, thus creating a precise Cash Flow view. You’ll get a 100% accurate and precise cash flow forecasting and reporting.

All company names and products mentioned in this release are trademarks or registered trademarks of their respective holders.

Knowing where you are helps you define where to start. For the best possible outcome, ask this question:  Do your internal systems align for people, technologies, and enterprise software?

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Tags: Enterprise Software, Cashflow, Cashflow Forecasting

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