Current scenario of mid-market companies
The COVID-19 pandemic had a negative impact on small and mid-market companies (SMEs) by impacting their revenues. Even if the pandemic’s effects are ignored, significant challenges remain related to treasury.
Treasury challenges faced by mid-market companies
- Limited budget for IT setup and hardware requirements:
On-premise ERP systems are typically installed locally on the company’s hardware and managed and maintained by IT staff. On-premise ERP software gives customers complete ownership and security, but it also adds to the cost of hardware and IT maintenance, and the cost is always a major concern for mid-markets.
- Regular enhancements and modifications:
Another obstacle to mid-market setting targets is the need to upgrade their current systems. The implemented systems are generally customized to meet the specific needs of the businesses and are difficult to re-implement with the upgraded version. As a result, every time the ERP provider releases a new product, service, or upgrade, the IT team has to start from scratch. This is a major reason why businesses avoid upgrading their systems and continue to run their businesses on outdated applications.
- Inaccessibility and lack of data availability:
Due to financial constraints, mid-sized businesses end up using multiple systems dedicated to each department rather than making a valuable investment in modern ERP systems. This leads to multiple data sources but a lack of data availability and accessibility to the employees. This further creates confusion due to disintegrated systems.
- Using spreadsheets for cash forecasting:
Spreadsheet-based processes are inefficient and error-prone. It’s difficult to collaborate across departments. It is also difficult to find data from a variety of sources (ERP, Bank portals, FP&A Systems). To analyze and improve the process, regular variance analysis can’t be done frequently due to the manual process. Moreover, forecasts for individual departments are harder to create.
What is real-time cash forecasting ?
Real-time forecasting refers to creating accurate and updated forecasts with all the historic and current information. It enables the treasury department to make decisions based on what’s going on in the business right now, rather than on a possible budget set months in advance.
How to achieve real-time cash forecasting?
- Automate data aggregation from multiple sources with the help of APIs and RPA. API provides real-time connectivity with the banks and ERP systems.
- Analyze the extracted data from the bank and the ERP system along with the historical data leading to accurate forecasts.
- Apply the bottom-up approach which leads to having more granular visibility from the local-to-global level.
- Increase the frequency of variance analysis to achieve accurate cash forecasting.
- Gather historical data, compare forecasts to actuals frequently, and use Automation and AI for accurate scenario analysis.
- Examine the history by keeping track of sales and budgets. By reviewing a sales history that shows when sales typically peak or dip, users can avoid running out of stock after a sales spike.
Benefits of real-time cash forecasting
- Discover and prepare for cash shortages: Businesses will be able to predict future cash gaps and avoid missed payments if they have an accurate and real-time cash forecast. A cash flow forecast gives businesses the clear vision they need to implement corrective actions such as fine-tuning payment and collection strategies, liquidating assets, or approaching lenders.
- Allocate cash surpluses wisely: Businesses rarely benefit from having a large amount of idle cash. Forecasts can assist in identifying potential surpluses and allowing cash managers to efficiently allocate excess cash. Whether a company decides to invest or use excess cash to gain a competitive advantage, it is critical that it leverages forecasts and puts excess cash to work. Scenario planning can help businesses forecast the impact of specific investments or decisions as they look to allocate excess cash.
- Manage FX risk: A reliable forecasting process is essential for managing and mitigating the FX risk associated with currency. Cash managers and treasurers can use forecasts to predict cash needs and reduce foreign currency transactions. Thus, cash flow and profit margins can both be protected and firms can get a better understanding of the impact of currency fluctuations on their finances.
Schedule a demo to create real-time cash forecasts for making timely business decisions.
