Finding the killer edge is what separates small money businesses from big money businesses. One of those edges is also the most important Key Performance Indicators (KPIs) to track: cash visibility or cash flow.
Cash flow, at its most basic, is a data feed that illustrates the health of a business in the past, present, and future, with dollars (or your preferred currency) as the data point. Accurate cash flow analysis allows a company to be proactive rather than reactive; cash flow analysis shows a business’s most profitable revenue streams, or identifies cash deficient areas, with timely updates of when and where money moves within company accounts.
Stable and consistent cash flow analysis is essential because it can help businesses predict shortages and income gaps, create more accurate future forecasting for planning or even provide stakeholders with timely insights to avoid dropping into the red.
Today, there are a number of platforms and technology solutions that use cash information and gather it into a real-time prediction of profits vs. debt down to the minute. New financial modeling technology that provides a reliable estimate of an organization’s future financial position is becoming increasingly sought after by large enterprises and small enterprises alike – especially given volatility around the way businesses have had to shift operations quickly over the last year.
Before investing in a technology tool to help your team scenario-plan or make important business changes, learn the important items to look for in cash flow analysis technology below.
Cash Flow Analysis Technology Key Terms
Granted cash flow analysis and tracking is an important part of your business plan— but what comes first? A step above traditional automated reporting systems, APIs, AI, and ML are the backbone of what modern cash flow analysis tech uses to offer accurate, real-time data reporting. Here are some trending words you’ll likely see in cash flow tech content:
- Artificial Intelligence (AI) – Processes or automations run by computers without the need for manual / human intervention
- Machine Learning (ML) – references a subset of AI that involves the ability to learn new information without being explicitly programmed
- Application Programming Interface (API) – a computing interface between multiple software intermediaries, where defining parameters can be set up to move a set group of data from point A to B.
Helpful tip: When researching, ask good questions about a company’s use of Artificial Intelligence. The difference could be significant.
Two Types of Cash Forecasting: Direct and Indirect
There are two types of cash forecasting—direct and indirect.
- Direct cash forecasting is typically for short term management purposes. This method uses various systems and algorithms to get as close to real-time reporting as possible.
- Indirect cash forecasting is longer in duration and focuses more on future income using historical and current data.
These models can then be used to make more informed business decisions, modify payment plans, or even revamp programs that aren’t working well for your business.
Three Cash Forecasting Technology Essentials
Before you and your team invest in an expensive cash flow analysis or forecasting technology, make sure it has these three attributes:
Manual cash tracking can take hours of time and labor, but technology can streamline the process by allowing instant processing of cash transactions and tracking. AI and APIs can incorporate emails, electronic expenses, and bank accounts, so that expense reporting can be done in real-time with just a few clicks of a button. By incorporating financial technology that makes management simple, employees are more inclined to stay on top of expense tracking and are flexible to make more critical, timely decisions.
By linking all corporate accounts to a modern expense management system, every transaction can be seen, every account managed, and any anomalies flagged. Transferring to electronic cash flow analysis and reporting allows for a real-time visibility into business spending, providing an accurate and holistic picture of a business’ entire financial outlook.
By implementing and connecting accounts into a single cash management system, employees can find all of the financial and transaction data they may need without the unnecessary back-and-forths between IT or adjacent departments. It also helps any team recognize patterns of company spending behavior over the entire business, not just one silo.
Why Cash Flow Analysis Technology is Critical for Better Management
We live in a time of superior analytics, where a program can use historical information, trends, and applied rules to create a robust cash analysis or cash forecasting system for better insights. Using algorithms set up through APIs and ML, these systems become more accurate as they learn from comparing the forecast to actual variances.
In the past, analytics and reporting had to be done manually. Not only was it not as accurate, but it also created a lot of extra work. Some professionals use Excel—an improvement over manual reporting, but still error prone. Excel is sufficient for receiving input but does not offer an expanding, growing, or learning forecasting model.
According to industry experts, ML for cash forecasting has the potential to be 3,000 times faster than standard manual processing practices that companies use. And speed isn’t the only benefit. Businesses can also improve accuracy, avoid human biases, and can detect possible fraudulent activity. Best of all, companies can realize monetary gains from more predictable cash positions.
There is no need to put in monumental amounts of work for a less accurate vision of daily operations – cash flow analysis technology work for businesses, and allow teams to reap the benefits of greater transparency, more detailed data, and superior forecasting.
Learn More About Innovations in Cash Flow Analysis Technology
Remember APIs? These programming functions are empowering innovative FinTech companies like Square who use them to automate their workflows, save time and resources, and get reports right the first time.
APIs are different from older, legacy systems because they allow companies to directly integrate with banks to connect and relay information within seconds.
Curious to learn more about how tech innovations are transforming treasury? Download “The 2023 Finance Professional’s Guide to Everything AI, ML, and ChatGPT.”