Improving Cash Flow Forecasting Through AP Analytics & Better Data

Cash flow forecasting is a critical part of financial planning for businesses of all sizes. Accurate cash flow forecasts help businesses plan for the future, identify trends, and make strategic financial decisions. In this blog post, we will discuss the importance of cash flow forecasting and how businesses can better manage their cash flow through AP analytics and better data management.

State of AP Report 2022 Download

What is Cash Flow Forecasting?

Cash flow forecasting is the process of projecting future cash inflows and outflows of a business. Organizations use this data to anticipate short-term and long-term business needs and make informed financial decisions.

Businesses must account for all expected sales, expenses, loans or investments in order to accurately project their future amount of available cash. This act of cash flow forecasting ensures that a business always has enough cash on hand to fulfill its obligations. It also helps teams preemptively identify potential cash flow problems before they affect business operations.

8 Steps to Improving Cash Flow Forecasting

From embracing a data-centric model and leveraging digital transformation, to reducing late payment fees and making sure your forecasting model is accurate, the following steps can help organizations get a better handle on their cash flow and make informed financial decisions.

1. Embrace a Data-Centric Model

Embracing a data-centric model is one of the key steps to improving cash flow forecasting. Businesses should aim to collect and analyze as much data as possible in order to get a complete and accurate model of their financial health. This includes data from both AP and AR. These two components together can ensure your company has the information necessary to make informed cash flow decisions.

With the right solution in place, teams can use data from invoice capture instead of waiting for the payments to be processed to the ERP system. This functionality empowers finance leaders to make choices based on real-time information, rather than relying on outdated or inaccurate data.

2. Leverage Digital Transformation for Better Information and Reports

Digital transformation can play a significant role in improving cash flow forecasting. By automating certain processes and reducing the possibility of human error, organizations can gain a more accurate picture of their financial health. This is particularly important for businesses dealing with large amounts of data, as manual processes are significantly more prone to errors.

According to a survey, 68% of CFOs note that bad data impacts their business efficiency. By leveraging digital transformation, businesses can eliminate mistakes and make it easier to pull historically tedious reports, such as the AP trial balance report. This information provides teams with better insights into their cash flow, helps to identify areas for improvement, and positions teams to make more informed decisions.

3. Reduce Late Payment Fees

One of the most important aspects of improving cash flow forecasting is reducing late payment fees. Late payments often occur when teams recently acquired a new company or are expanding their locations. These late payments can result in fees and interest charges that stack up over time and negatively impact a company’s bottom-line. Thankfully, these unforecasted fees are easily preventable with the right AP tools in place.

To reduce late payment fees, companies should leverage a reporting tool that provides a history of payments report, AP trial balance report, and AP aging report. This information identifies missed payments and prevents late payment fees going forward.

4. Be Agile in Your Approach and Update Cash Forecasts on a Consistent Basis

Another key factor in improving cash flow forecasting is being agile in your approach and updating cash forecasts on a consistent basis. Outdated data is one way to quickly ruin a cash forecast. Today’s business circumstances with the pandemic and supply chain issues demonstrate just how crucial it is for finance teams to quickly pivot their strategies. In order to do so, their models rely on real-time insights and information. Regularly updating cash flow forecasts ensures that the model always remains accurate and relevant.

Additionally, companies can adjust their priorities based on their cash forecasts. For example, in cases where it may be important to have money on-hand, companies can leverage AP analytics tools to explore the effect of a higher DPO on their bottom-line.

5. Use Different Forecasting Ranges

Using different forecasting ranges, such as short-term and long-term timeframes, can provide different insights into a company’s overall financial health. While short-term forecasting provides valuable insights into immediate cash needs and potential short-term liquidity issues, long-term forecasting delivers valuable insights into a company’s financial health over a longer period of time and can help identify potential long-term liquidity issues. Teams must evaluate each of these ranges to ensure they are financially secure in both the immediate and distant future.

6. Improve Visibility into the Financial Process

For companies who have not fully embraced AP automation, it can be difficult to determine which invoices have been paid and which have not. This results in added stress and disorganization for the AP team. Meanwhile, modern finance teams are embracing automation and analytics tools like MineralTree to gain visibility into their payments and overall AP workflow. This clear and accurate view into the financial health of the organization ultimately leads to more accurate cash flow forecasting.

7. Reduce Duplicate Payments

Duplicate payments can be a high-ticket item for companies. These payments quickly add unforecasted expenses to the balance sheet, yet they can easily be avoided with an AP automation tool. AP automation systems reduce duplicate payments by catching duplicate payments long before they sneak their way to payment approval. This minimizes the likelihood of duplicate payments and improves overall cash flow forecasting accuracy.

8. Make Sure Your Model is Reliable and Accurate

It’s important to make sure that the model used for cash flow forecasting is reliable and accurate. Forecasting models are built on specific assumptions and it’s crucial to monitor the differences between actual and predicted spend to improve the model. One way to do this is to regularly compare your actual cash flow with your forecasted cash flow and to make adjustments as needed.

For example, consider a company that sells seasonal products. The company’s financial model may assume that sales will be higher during the holiday season and lower during the rest of the year. However, if the company experiences unexpected weather patterns or changes in consumer behavior, their actual sales may differ from what was predicted.

IBM noted in its seasonal forecast that a warmer winter could impact consumer spending habits. 56% of those surveyed noted that outside of the holiday, they shop because they need to get through the season (that is, with items like comfort food), while 29% have a weather-driven need, such as salt for driveways and winter attire. In this case, it’s important for the company to regularly review its financial model and make adjustments to ensure that its predictions remain accurate and can account for worst-case scenarios.

Case Study: Simple Mills

Simple Mills is a natural food company that offers products such as crackers, cookies, and baking mixes. The company partnered with MineralTree to streamline its invoice processing, eliminate manual data entry, and improve financial visibility. This increased financial visibility simplifies their cash flow forecasting and makes it more accurate than ever before. As a result, Simple Mills now boasts significant time and cost savings, increased efficiency, and improved supplier relationships.

Final Thoughts

Improving cash flow forecasting is a critical aspect of financial management. By embracing the steps outlined in this article, including implementing a data-centric model, leveraging digital transformation, and staying agile in your approach, you can improve cash flow forecasting accuracy to drive growth for your business.

Prioritizing AP automation and accurate AP forecasting are major keys to successful cash flow management. Learn more about MineralTree’s offerings that can help you automate your AP processes end-to-end. Request a free demo to learn more.

State of AP Report 2022 Download


We're transforming accounting by automating Accounts Payable and B2B Payments for mid-sized companies. Our award-winning solution has helped over one thousand businesses transform accounts payable from a source of inefficiency and fraud risk to a secure and strategic profit center that provides visibility into key cost drivers.