Emagia featured in GTNews Cash Forecasting Q&A

Q) How can we improve cash flow accuracy when dealing in commodities that move price constantly?

A) Mike Backlund - Emagia

A In many industries, including those dealing with commodity goods, pricing changes are rampant and can make generating an accurate cash forecast especially difficult. It is important to have a robust cash forecasting methodology as well as leading edge tools to address the dynamic nature of pricing changes, customer payment habits and changing business conditions.

A solid methodology for cash forecasting will focus on defining a reasonable scope and an appropriate level of precision. This in turn will lead to being able to easily compare actuals to forecast values and determine variances. A key linchpin of this methodology is to utilize a robust cash forecasting platform. This platform will be able to easily access distributed financial data in a timely manner, store historical cash flow data for trend analysis and allow simulation of multiple cash forecast revisions based on multiple sources of input. These sources of input could be individual collector information, promises-to-pay from customers as well as historical payment data.

When dealing with pricing changes, a cash flow management solution will offer the ability to identify trends and cycles from the past and apply them to the cash forecasts. If pricing changes are seasonal, for example, the reflected payment history can be taken into consideration while generating the forecast. Similarly, each forecast revision can be manually updated to reflect other criteria such as known projected pricing changes, thresholds set by collectors, etc. In this manner, simulations of different forecasts, along with realistic acceptable variance levels, can bring a higher level of predictability to cash flow processes.