How to Use AI to Become a Cash Forecasting Expert
In our last blog post, we talked about some of the fundamentals needed to create an accurate cash flow forecast, whether you are planning for the long term or the near future.
Between continued economic uncertainty, supply chain challenges, and other external factors, your ability to create reliable forecasts has never been more important. It helps you to realistically assess your organization’s financial future, ensuring intelligent decisions can be made in regard to growth initiatives and other investments.
Creating a forecast can be a complicated and involved process. Fortunately, advancements in AI and machine learning are making the job easier and more accurate than ever.
Predictive Analytics Handles the Heavy Lifting
Before getting into just how predictive analytics can help your organization, it helps to understand exactly how this technology is defined.
Predictive Analytics is a branch of advanced analytics that makes predictions about future outcomes using historical data combined with statistical modeling, data mining techniques, and machine learning.
As the importance of data analysis has grown, many organizations have found that their problem is not a lack of data. On the contrary, organizations face a deluge of data, and find it hard to access and analyze it effectively to generate useful business insights. That’s where predictive analytics comes in. By using algorithms to study historical data, the technology can detect patterns and make valuable predictions about what is most likely to occur in the future.
➜ Go Beyond Cash Forecasting with the AI in Accounts Receivable Playbook
How the Technology Works
Quadient Accounts Receivable by YayPay uses two algorithms to analyze data. The first is our on-time prediction algorithm, which examines current invoices and predicts if they will be paid by or before their due date. The second predicts late payments and analyzes past-due invoices. It then takes the invoice in question and places it into buckets — from 1 to 30 days, 31 to 60 days, 61 to 90 days, and 90 + days overdue — with an estimation of which bucket the invoice is most likely to land in.
This information provides you with a much more accurate idea of when you will have inflows of money, potential delays that you will need to factor in, and which accounts need to be handled more proactively to ensure timely payment. All of these will help you to create more accurate cash forecasts and free up staff from the tedious process of gathering information, analyzing data, and attempting to make predictions on their own.
Working With Your ERP
The software integrates with your ERP and analyzes data such as past payments and credit memos. It then leverages this information to create a customer credit profile that details average payment time, credit limit, average days overdue, and whether there are particular times of year or seasons that seem to impact payment behavior.
It’s a useful tool that allows you to strategically plan how you approach your collections process, but the technology doesn’t stop there. It also examines your accounts receivable as a whole and provides an analysis of your average customer. The data is then organized into charts that detail when you can expect invoices to be paid and how much money you will receive on any given day. It can be adjusted to reflect different time periods, including the next 7, 17, 30, or 60 days.
Featured Resource: The AI in Accounts Receivable Playbook
Adjusting in Real-Time
When creating a short-term cash flow forecast, this information is invaluable and is significantly more accurate than when the process is handled manually. That’s because the software’s machine learning is continually making adjustments based on real-time information. That means that the longer and more frequently you use the feature, the more accurate it becomes. In fact, the technology can make predictions with up to 94% accuracy. That means that should an event like a natural disaster or supply chain disruption occur, it is incorporated into the history and makes projections that include that event. That way, should it occur again, you’ve already got an accurate idea of the impact.
Finding Your Footing on Uncertain Terrain
By embracing tools like artificial intelligence and machine learning, you can take much of the guesswork out of vital practices like cash forecasting. That leaves you with a better footing to take on the ever-changing terrain of the financial world.
