Panax forecasting: automate and customize your financial forecasting

As companies grow, so do their cash management requirements. This leaves CFOs and treasury teams with new challenges to deal with. They need to manage multiple accounts across multiple currencies and geographies, ensure optimized use of financial instruments like credit lines and investments, gain control of their liquidity status, forecast cash flows, and more. The cost of an error is high, which is why many teams turn to cash management solutions at this stage.

Modern cash flow management solutions are automated platforms for optimizing cash flow. Some of them are also AI-driven. Instead of dealing with bulky, complex spreadsheets, they collect all your cash flow data into the platform. and present it with an additional layer of analysis. This streamlines the cash management and forecasting processes, ensures up-to-date visibility, and helps lean finance teams to manage cash risks,optimize liquidity and increase ROI on excess cash or debt.

While the benefits of adopting a cash flow management solution are obvious, choosing the right solution can be challenging. The following items should not be missed when evaluating your solution. Following this list ensures you are able to maximize your efforts and free yourself up for other responsibilities. 
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A robust cash flow management solution is essential for real-time financial tracking, ensuring that your business stays on top of its financial health with accurate and integrated data
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1. Complete cash visibility

Obtain a comprehensive and complete daily view of your cash positioning, including all bank and payment accounts. Make accurate and relevant short-term and long-term decisions with confidence without errors and data integrity risks. Look for:

• A single and centralized dashboard

• Up-to-date liquidity snapshot of cash, investments, and restricted cash

• Ability to filter across accounts, institutions, currencies, and more

• Daily/monthly cash reports

• Trends analysis

• Customizable reports

2. Reliable and comprehensive data connectivity

Probably the most important item on the list - Ensure your cash management solution brings in all the data you need to manage your cash flow. This will ensure your data is reliable, regularly updated, comprehensive, and enables you to make decisions that support your financial needs. Look for:

• Data connectivity via APIs to all global financial institutions, including banks, ERPs, and cash platforms, and any other financial systems that you use so that your data is regularly updated.

• Reliable data connectivity when APIs are not available, or not supported. Make sure there are alternative methods of gathering data from all financial institutions, even those that don’t support API connection, so you can get full cash flow visibility across all your accounts.  

• An overview and deep-dive of your cash flow and all activities including:
  - Reconciliation of transactions
  - Inflows and outflows
  - Trends
  - Historical balances

3. Reports and insights

Identify and prevent cash-related risks and identify and seize cash-related opportunities to optimize cash management and ensure errors are prevented. Look for:

• Actionable insights for effective cash management

• Alerts that allow immediate response

• Ability to set up account automatic buffers to improve capital efficiency and transfers

• FX hedging support

4. Resource efficiency

Make sure using your cash management solution is easy and intuitive to use. This will be one of its main advantages over using Excel: replacing manual work, accessible from anywhere, and freeing up you and your team for other prioritized needs. Look for:

• Self-serve: No IT required

• Tagging capabilities

• Easy setup

• SaaS solution

• Collaboration capabilities

5. Smart categorization abilities

Manage your accounts, transactions, and cash positioning to accurately analyze your current and future cash flow. Look for:

• Ability to create customized categories and sub-categories

• AI-based categorization process to replace your manual labor

• Automated ERP matching

6. Forecasting abilities

The adoption of a new cash management solution is a great opportunity to automate your cash forecasting, increase its effectiveness, and improve forecast quality by reducing human errors.. Look for:

• Easy comparison of forecasts against actuals

• Easy data collection and categorization, including ERP data

• Customizable forecasting methods for your business

• AI-based forecasting for tailored insights

7. Security

Safeguard your organizational data to ensure your cash flow data is secure, comprehensive, reliable, and available for you to use. For data security look for:

• Compliance with leading regulations like SOC 2

• Application security through practices like third-party penetration testing and vulnerability scanning

• Data encryption in transmission and at rest

• Real-time monitoring of risks and policy compliance

• Access management- RBAC, least privilege, etc.

• Secure development practices

What’s Next?

Choosing the right cash management solution is a strategic choice, since it will directly impact your ability to streamline financial operations, manage liquidity, and optimize cash flow. Therefore, this decision should not be taken lightly. Use this checklist to evaluate and compare different solutions. Don’t be afraid to ask vendors the difficult questions it raises, from which data they connect to to how they support forecasting, and more. By comprehensively comparing solutions, you can ensure your treasury operations will be more robust and accurate than ever. 

Learn more about Panax’s cash flow management solution that supports lean finance teams with complex treasury management needs.

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The basis for any cash flow insight is understanding what drives cash inflows and outflows. Finance and treasury teams are used to downloading bank statements and manually categorizing each transaction to create the cash database that can then be used for various analyses. Rule-based categorization saves significant time and reduces some of the manual effort. But it still requires initial, time-consuming setup and ongoing maintenance.

AI-based models are changing the game for transaction categorization. From automatically identifying certain types of transactions (e.g. intercompany transactions) to enhancing categorization by identifying similarities between uncategorized and previously-categorized transactions, AI makes the job faster, easier and more efficient. 

Additionally, AI enables companies to leverage a broader knowledge base (such as how bank fees are charged by different banks). Bottom line - AI is reducing the time needed to categorize transactions by >90%, without compromising on (and even improving!) categorization accuracy. 

Trends, Anomalies, and Insights

AI is transforming treasury operations by automating routine tasks and providing predictive insights that empower teams to make smarter, more strategic decisions.

Once the team has a robust database of categorized transactions, it’s time to analyze and make decisions. All the data is there, you just need to find the interesting insights. Sounds easy right? In fact, every finance or treasury analyst knows that's actually the toughest, most time-consuming part.

Thinking of which queries to run, technically building the reports, and identifying the trends and anomalies that are insightful, are all tedious tasks that require a lot of trial and error and repeated number crunching.

AI is revolutionizing cash flow analytics. New generative models are able to identify trends in a contextual manner, and surface only those insights that can potentially have an impact on the business. Anomaly detection can be easily calibrated to surface suspicious transactions and high-impact inflows and outflows that require the team’s attention.

Finance and treasury professionals’ shortage is a huge problem that’s only going to become worse. The ability to leverage AI empowers lean teams to focus on the insights and on devising effective action plans, rather than on manual, less value-add number crunching. We have entered a new reality, one that makes finance and treasury teams much more strategic. 

AI revolutionizes cash flow analytics by identifying contextual trends and anomalies, enabling treasury teams to focus on strategic decision-making rather than manual data analysis

Cash Flow Forecasting

This is one of the most sought after AI features when it comes to cash flow management. It is also one of the most over-hyped. Yes, it would be amazing if a magical AI could tell the future of cash flow and accurately predict where a company’s cash balance is headed. But, this is unfortunately not a realistic expectation (at least not until AGI takes over all of our lives and makes all decisions).

Even the most advanced AI-based models use historical data to forecast the future, and the reality is that for complex companies, the future never behaves exactly like the past. There are always changes that need to be factored in and taken into account when trying to build and roll an accurate cash flow forecast.

Moreover, the goal of a cash flow forecast isn’t just to get to the bottom line of ending cash balance, it’s also to understand causes and effects and respond to cash changes effectively so as to prevent problems. If someone offers you a click-of-a-button automated AI cash forecast, run as fast as you can! 

Nevertheless, when used correctly, AI can have tremendous value for accurate cash flow forecasting. While it’s not a fortune teller, it can effectively identify trends and suggest optimal formulas to use, provide basic root-cause analyses, and suggest actions and mitigations that can dramatically improve both the forecast building process and the decision making process that follows. 

Dynamic, Natural Language-generated Reporting 

Building reports is hard. Whether it’s in Excel, a BI tool, or a dedicated treasury platform, inputting the relevant syntax that will spit out the analysis you’re trying to perform requires some technical skills and tedious trial and error until you get it right. For example, SQL queries such as w​​indowing, aggregation, and grouping don’t come naturally to most treasury analysts. 

This is one area in which generative AI is creating a completely new reality. LLMs (large language models) that tap into companies’ cash data can automatically generate any report that crosses an analyst’s mind, based on natural language input. Want to know what were the three biggest expenses last week? Just ask. Want to understand how fast collection is growing in a specific geography?

No problem. The two caveats here are (1) the data needs to be properly categorized, otherwise it’s a classic garbage-in-garbage-out situation (AI can help with that too – see #1), and (2) that you need to know what’s interesting to explore (see #2).

AI is Changing the World

AI really is changing the world, and finance and treasury operations are no exception. It can leapfrog a few of your team’s abilities, including some important ones:

• Quickly and accurately categorize transaction
• Surface important and insightful trends and anomalies
• Build accurate and explainable cash flow forecasts
• Empower you to easily answer questions regarding your company’s liquidity. 

However, it’s important to remember that it’s not like a magic device that transports you instantly from one place to another. A more fitting analogy is that it’s like a bike you can ride to get from point A to point B – you still have to pedal, but you will get where you're going faster and less sweaty.  

 Are you interested in learning how your company can benefit from AI powered cash flow management? Let's talk.

‍AI is a term that’s been thrown around a lot recently – AI forecasting, AI automation, AI finance operations, AI reconciliation, AI EVERYTHING. While the progress that’s been made in the field is undoubtedly a game changer for treasury teams, there’s also a lot of buzz and hype that’s not always backed by actual value.

‍The goal of this post is to demystify AI and shed light on some areas where it can truly give finance and treasury teams superpowers. Let’s get to it.

Luckily with a solid grasp of cash flow management, your company can meet operational needs and capitalize on growth opportunities. For the next several minutes, we’ll look at two action items that help maintain an advantageous capital supply: Cash flow statements and cash flow forecasting.

What is a cash flow statement?

A cash flow statement is a historical view of cash inflows and outflows over a specific period. Businesses use cash flow statements to help assess past performance, while data informs future strategies and ensures accurate financial records. 

What is cash flow forecasting?

Cash flow forecasting uses the company’s historical financial data to identify potential surpluses or shortages and adjust spending as necessary.  

Ultimately, cash flow statements and cash flow forecasting support daily operations as well as long-term growth and sustainability.

A cash flow statement offers a historical perspective on a company's cash movements, while cash flow forecasting anticipates future cash needs to guide strategic planning.

What’s included in a cash flow statement?

There are three main components of cash flow statements: operating, investing, and financing activities. Here’s a breakdown of each.

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Operating Activities

The operating activities section details the core revenue activities of a company, ie cash flows directly related to the production and sale of goods and services. Operating activities help gauge operational efficiency and profitability by specifying: 

• Cash received from customers
• Cash paid to suppliers and employees
• Other operational expenses and income

The operating activities section allows you to assess the company's ability to generate positive cash flow in the short term, which is essential for maintaining liquidity to meet its obligations. 

Investing Activities

Investing activities capture cash flows related to the acquisition and disposal of long-term assets and investments—for example, new machinery, technology, or business acquisitions. Investing activities should also note any: 

• Purchases of property, plant, and equipment (PPE)
• Sales of long-term investments
• Loans provided to or received from other entities

Investing activities help gauge how the company allocates resources for long-term growth. For example, are you spending more on acquiring assets or divesting? This provides insights into the strategic direction and potential future revenue streams. 

Financing Activities

The financing activities section highlights transactions with the company's owners and creditors to fund:

• Proceeds from issuing shares
• Repayment of borrowings
• Dividend payments to shareholders

This section highlights the reliance on external financing, such as loans or issuing shares, and the capability to repay borrowings and distribute dividends. This section is pivotal for risk management as it indicates the company's ability to manage debt and inform financial risk strategies.

What are the types of cash flow forecasts?

There are several types of cash flow forecasting, all of which can enhance your company's financial planning and stability. Let's explore the three main types.

Scenario analysis is the creation of different financial situations based on potential events. It helps you understand how various occurrences—like economic downturns, market shifts, or changes in your business operations—might impact your cash flow. By evaluating best-case, worst-case, and most-likely scenarios, you can prepare more robust financial strategies. 

Rolling forecasts are dynamic and continuously updated. Unlike traditional static forecasts that cover a fixed period, rolling forecasts extend beyond this set timeframe. They adjust as new data comes in, providing a real-time view of future cash flows. This allows companies to be more agile and responsive to changing business conditions. 

Sensitivity analysis assesses the impact changing key variables have on your forecast. By tweaking variables like sales volume, cost of goods sold, or interest rates, you can see how sensitive your cash flow is to these changes. This method helps pinpoint the most critical factors affecting your financial health and supports more informed decision-making. 

What’s included in cash flow forecasts?

Cash flow forecasts should contain four main categories of information: expected income, projected dates for receiving that income, expected costs, and projected dates for when costs are incurred. More specifically, cash flow forecasts include:

• Opening balance: The balance at the beginning of the forecast period 
• Receipts: Income from sales, interest, and asset sales, broken down by item 
• Total receipts: The total amount of receipts 
• Payments: Expenses from materials, wages, marketing, and so on broken down by cash flow item 
• Total payments: The total amount of payments 
• Net movement: The difference between the total amount of cash a company receives (cash inflows) and the total amount of cash it spends (cash outflows) during a specific period, either by individual item or total 
• Closing balance: The balance at the end of the forecast period 
• Projected dates: The projected dates for when income will be received and costs will be incurred 
• Non-sales income: Income from sources like tax refunds, grants, investments, and royalties

Cash flow forecasting is critical to several key areas of the business’s financial operations such as resource allocation, capital structure planning, and supporting growth initiatives. Here’s why: 

1. Resource allocation: By predicting future cash flows, businesses can allocate resources more effectively, ensuring that funds are available for operations, investments, and unexpected expenses. 

2. Capital structure planning: Accurate forecasts allow companies to plan their capital structure—balancing debt and equity—to maintain financial stability and minimize costs. For example, a forecast that highlights periods of high cash outflows might prompt a company to seek additional financing or adjust its debt repayment schedule. 

3. Supporting growth initiatives: Forecasting enables companies to anticipate growth needs and plan accordingly. This means ensuring that sufficient cash is available for projects, such as market expansion, R&D, and acquisitions, thus supporting long-term growth objectives

Real-life examples of cash flow forecasting & cash flow statements 

Before looking at what these two essential financial tools look like in real scenarios, here’s a recap of their definitions: cash flow statements are a historical view of where your money has been. Cash flow forecasting shows where your money will be. 

By combining these tools, you get a comprehensive picture of past performance and potential future outcomes, making it easier to plan for growth and navigate the complexities of the mid-market landscape. Let’s look into how cash flow statements and cash flow forecasts play out in the following scenarios:

• New product launch
• Seasonal market fluctuations 
• Expansion into new markets 
• Economic downturns

‍New product launch: Imagine your mid-market company launches a new product. The cash flow statement reveals the previous costs of similar product launches and the generated revenue.  With this information, you can use the cash flow forecast to predict future cash inflows and outflows, helping you plan for the necessary working capital and anticipate any shortfalls. 

Managing seasonal fluctuations: By examining cash flow statements, you can identify financial patterns during different seasons—higher sales in summer and lower in winter. Using this data, your cash flow forecast will cover expenses in off-peak times and make the most out of peak periods. 

Expansion into new markets: If your growth company is considering an expansion into new markets, cash flow statements can highlight how previous expansions impacted cash flow. Metrics like initial overheads, marketing spend, and time to breakeven are shown. Leveraging these insights in your cash flow forecast helps gauge the potential financial impact, thereby informing budget allocations and risk management strategies. 

Economic downturns: During economic downturns, historical cash flow statements can provide critical insights into how your company managed cash in previous crises. In this circumstance, forecasts will likely include strategies such as cutting non-essential expenses, securing lines of credit, or delaying capital expenditures for liquidity and operational stability.

Applying cash flow statements & forecasting to growth strategies

Effective growth planning hinges on cash flow statements and cash flow forecasting. Let's briefly touch on how these financial tools can be game-changers for your strategy. 

Managing expansion risks: Analyzing cash flow statements allows growth and mid-market companies to learn from past inconsistencies and make informed decisions to avoid similar pitfalls. On the other hand, cash flow forecasting helps you anticipate potential cash shortages and prepare contingency plans in advance. 

‍Optimizing Cash Reserves: Understanding your cash inflows and outflows through detailed cash flow statements sets the stage for optimizing cash reserves. This historical data can highlight periods of high liquidity, making a solid case for when to accumulate cash reserves. Forecasting takes this a step further by predicting future cash positions, enabling you to take proactive actions such as short-term investments or debt repayments during times of surplus. 

Financing Growth: Cash flow statements help you demonstrate financial health to potential investors and lenders by showcasing your ability to generate and manage cash effectively. To strengthen your pitch, cash flow forecasting projects how additional funds will be utilized and the expected returns. Together, they provide a compelling case for securing funding for expansion initiatives. 

By harnessing the insights from both cash flow statements and cash flow forecasting, businesses can navigate growth with greater confidence, ensuring a balance between aggressive expansion and financial management.

Quick tips for capital efficiency

You can achieve working capital efficiency by focusing on three areas: implementing working capital management across the organization, leveraging technology, and reviewing risk management policies. 

1. Implementing working capital management across the organization‍

Make an organization-wide effort to consider the cost of working capital when making decisions. This ensures that each team understands its impact on working capital and is aligned with company goals. For instance, companies can use key performance indicators (KPIs) such as days sales outstanding (DSO) and days payable outstanding (DPO) to assess performance at different levels and departments. This allows the organization to track progress. 

2. Leveraging technology‍

In 2024 and 2025, many companies will swap human-error-prone tools like Excel for advanced technology such as Machine Learning (ML) and predictive analytics to boost operational cash flow forecast accuracy. Utilizing real-time data and analysis within your tech stack allows the business to adjust liquidity, risk, and funding strategies to meet current or future demands. 

3. Reviewing risk management policies‍

To get the most out of cash management solutions, review your risk management policies to ensure nothing slips between the cracks. Ideally, businesses review risk management policies at least once a year, though changing markets may necessitate more frequent reviews to address potential challenges.  

A better way to manage cash flow

Combining cash flow statements and forecasting allows you to assess past performance while predicting future financial health for better decision-making and resource allocation. This integration can help your business navigate uncertainties and seize growth opportunities effectively.

However, modern cash management faces several challenges.

• Reliance on Excel: Using Excel for cash management can lead to errors and inefficiencies due to manual inputs and a lack of real-time data.
• Poor Visibility: Limited visibility into cash flows can hinder a business's ability to make informed decisions, leaving them reactive rather than proactive.

Fortunately, solutions like Panax can significantly alleviate these challenges. 

Panax offers a comprehensive suite of tools designed to automate and streamline your cash management processes. With advanced features like customizable templates, automated data entry, and real-time updates, Panax removes reliance on cumbersome spreadsheets, reducing human error and streamlining your processes.  

Get in contact today to see how Panax can provide full visbility into your cash managementFor any business, understanding financial health is critical. In fact, 97% of CFOs make cash and liquidity management a key focus with many finding new ways to alleviate challenges such as relying on Excel or using tools with poor visibility into finances.