AI-powered cash management, with you in the driver’s seat

Working capital is the difference between a company’s current assets (e.g., cash, inventory, accounts receivable) and current liabilities (e.g., accounts payable, short-term loans).

The formula is simple:

Working Capital = Current Assets – Current Liabilities

Working capital management is the process of managing these resources to meet short-term obligations and remain operational.

Simple Example:

Imagine a small retail business. Their inventory (current asset) is worth $50,000, while their accounts payable (current liability) sits at $30,000. Their working capital is $20,000. If they poorly manage accounts payable or overstock their inventory, they risk liquidity issues that could jeopardize daily operations.

Why businesses need to manage working capital effectively

Proper working capital management ensures financial stability. It’s a balancing act—too much working capital may suggest inefficiency, while too little can lead to liquidity crises. Effective management provides the flexibility to meet immediate financial obligations and invest in growth opportunities.

The link to cash flow optimization

Working capital management is inextricably tied to cash flow. By optimizing accounts receivable, accounts payable, and inventory, businesses can accelerate their cash conversion cycle (CCC)—the time it takes to convert investments in inventory into cash received from customers. Essentially, a shorter CCC means smoother cash flow.

Impact on profitability and liquidity

• Profitability improves as funds tied up in working capital can be reinvested into high-ROI opportunities.
• Liquidity reduces the risk of insolvency, ensuring the company can cover its short-term liabilities.

How it works

1. Monitor assets and liabilities: track cash, accounts receivable, inventory, and accounts payable. 
2. Analyze ratios: use ratio analysis to measure working capital management effectiveness.
3.  Make decisions: use the information to make decisions about short-term spending and debt. 
4. Improve processes: use software to automate processes like invoicing and payments. 

Types of working capital

To create financial strategies tailored to your business, it’s critical to understand the different forms of working capital:

1. Permanent working capital 

Permanent working capital is funds that are consistently required to support basic operational needs (e.g., maintaining inventory). These funds remain constant irrespective of fluctuations in business activity levels and are vital for sustaining long-term operations. Properly managing permanent working capital ensures the business operates smoothly even during periods of economic uncertainty.

2. Regular working capital 

These are funds needed to cover routine operational expenses in running a business. Regular working capital is critical to maintaining liquidity and meeting short-term obligations without disruption.

3. Reserve working capital 

Reserve working capital is funds set aside to address unexpected expenses or financial contingencies due to unforeseen circumstances. Maintaining adequate reserve working capital safeguards the business against potential disruptions and assures operational stability under challenging conditions.

4. Fluctuating working capital 

Fluctuating working capital requires careful planning and monitoring to effectively allocate resources during peak and off-peak periods. Proactively managing these variations helps prevent cash flow issues and supports business operations.

5. Gross working capital 

Gross working capital refers to the total current assets available within a business, including cash, accounts receivable, inventory, and other liquid assets. By effectively managing gross working capital, the organization has sufficient resources to meet short-term obligations while enabling smooth operational processes.

6. Net working capital 

Net working capital is the difference between a company's current assets and current liabilities, which indicates financial health. Maintaining positive net working capital is essential for meeting short-term liabilities and supporting day-to-day operations.

5 Key components of working capital

‍To streamline working capital management, businesses usually focus on the following  critical elements:

1. Current assets

Current assets encompass resources a company can convert into cash within a short period, typically a year. These assets include i) cash and cash equivalents ii) accounts receivable, inventory, and iii) short-term investments. Managing current assets is crucial for maintaining liquidity while covering immediate financial needs. These resources allow businesses to manage operations seamlessly, respond to market demands, and support growth opportunities. Proper oversight and optimization of current assets directly contribute to a strong financial position. 

2. Current liabilities

Current liabilities include i) accounts payable and ii) short-term loans, which represent the company's immediate financial responsibilities. Accounts payable refers to amounts owed to suppliers or vendors for goods and services already received, while short-term loans typically involve borrowed funds that must be repaid within a year. Correctly managing these liabilities is essential to maintaining the organization's financial health and smooth daily operations.

3. Net working capital formula

Net Working Capital = Current Assets - Current Liabilities

‍Net working capital is a critical measure of a company's short-term financial health, operational efficiency, and liquidity. A positive net working capital means that the company has enough current assets to cover its current liabilities, meet financial obligations, and invest in growth opportunities. On the other hand, a negative figure could mean potential liquidity issues and necessitate immediate attention to protect the business’s stability.

What should be excluded from working capital?

Items that aren’t part of a company’s short-term assets or liabilities are not part of working capital and include: fixed assets (e.g. real estate and equipment that can’t be converted into cash within a year, long-term debt and lease obligations that go beyond a year, retained earnings or common stock, and patents and trademarks).

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Benefits of effective working capital management

Why should organizations prioritize working capital management? Read on for the key benefits: 

Improved cash flow & liquidity 

Effective working capital management ensures a steady and reliable cash flow, allowing organizations to maintain liquidity for operational needs and unforeseen expenses. By optimizing receivables, payables, and inventory levels, companies can reduce financial strain and avoid costly short-term borrowing. This proactive approach not only supports day-to-day operations but also provides flexibility to take advantage of strategic investment opportunities that power long-term growth and stability.

Better risk management 

Effective risk management is critical for mitigating financial uncertainties and safeguarding organizational stability. By analyzing potential threats and implementing robust contingency plans, companies can minimize the impact of adverse events on their operations. Proactive identification and evaluation of risks allow businesses to allocate resources strategically, reducing exposure to volatility.

This structured approach enhances decision-making processes and promotes resilience, ensuring sustained performance even in challenging market conditions.

Enhanced operational efficiency 

Streamlining processes, optimizing resource utilization, and reducing redundancies across the organization enhance your operations, improve productivity, and create better outcomes.Through working capital management, your business can create clear workflows and continuously monitor performance to align operations with strategic goals. This not only drives cost-effectiveness but also allows the company to quickly adapt to market demands for long-term success.

Stronger supplier & customer relationships 

Maintaining liquidity to meet its short-term obligations via working capital management means you’re making timely payments and fostering trust with suppliers. This reliability strengthens partnerships, leading to better negotiation terms and consistent supply chains. Similarly, optimized working capital enables businesses to offer favorable payment terms to customers, enhancing satisfaction and loyalty.

By balancing cash flow, businesses can create mutually beneficial relationships that support long-term growth and collaboration.

Challenges in managing working capital

While the benefits are clear, managing working capital is not without challenges:

1. Cash flow constraints 

Insufficient liquidity can lead to missed growth opportunities or delayed payments. Businesses often struggle to balance incoming and outgoing cash, particularly when dealing with fluctuating sales cycles or unexpected expenses. Additionally, relying on credit or slow-paying customers can exacerbate these constraints, straining operational efficiency.

2. Over-reliance on credit 

Excessive dependence on short-term financing can lead to high-interest costs. This can reduce financial flexibility and leave your businesses vulnerable during low revenue periods. Furthermore, it can create a cycle of dependency that hinders long-term growth and hampers the ability to invest in strategic initiatives.

3. Inventory management issues 

Poor inventory management disrupts cash flow, as excess inventory leads to increased holding costs, while insufficient stock can damage customer relationships and diminish brand reputation. Balancing inventory levels is critical to ensure liquidity and maintain operational stability. 

4. Accounts receivable delays 

Late payments from customers hinder cash flow and operational agility. These delays reduce the funds needed for day-to-day operations and strategic investments. Prolonged payment cycles may also increase reliance on external financing, raising borrowing costs and financial risk.‍

Strategies for working capital management

‍To overcome these challenges, CFOs and treasurers can adopt some of the following strategies:

1. Cash flow forecasting & budgeting 

Anticipate future cash needs to avoid shortfalls or surpluses. Tools like cash flow software can streamline projections. Regularly updating cash flow forecasts to align with changing market conditions and organizational priorities, for better decision-making. 

1. Inventory control techniques 

Implement just-in-time (JIT) or ABC analysis to maintain optimal inventory levels. These methods minimize holding costs and reduce the risk of obsolescence while ensuring that stock levels meet demand. Regular inventory audits and leveraging software solutions can further enhance efficiency and accuracy in inventory management.

3. Streamlining accounts receivable & payable 

Encouraging faster customer payments by offering early payment discounts, which improve cash flow and reduce outstanding receivables. Additionally, negotiating extended payment terms with suppliers gives you more financial flexibility and improved management of accounts payable.

4. Leverage financial tools & technology 

Use automated solutions like supply chain finance platforms and electronic invoicing to improve efficiency. These tools streamline payment processes, reduce errors, and provide real-time insights into cash flow, fostering more informed decision-making.

Differences between related concepts

‍Lastly, it’s crucial to disentangle working capital management from related concepts:

Working capital vs. cash management 

Working capital compares current assets to current liabilities to understand whether the finance team can pay bills and other short-term liabilities. Cash flow measures the cash inflows and cash outflows, as shown in the cash flow statement. 

Working capital vs. capital budgeting 

Capital budgeting focuses on long-term strategic investments, while working capital management is concerned with the short-term, operational aspects of managing a company's current assets and liabilities.

Take control of your working capital today

Working capital management isn’t just a financial principle—it’s the backbone of operational efficiency and business growth. For CFOs, VPs of Finance, Controllers, and Treasurers, understanding and implementing these strategies is vital for maintaining liquidity, optimizing cash flow, and securing a competitive edge.

Find gaps in your working capital strategy? Prioritize stronger relationships with suppliers, streamline receivables, and harness the power of automation to elevate your game. A balanced working capital approach today can fuel unprecedented growth tomorrow.

To get more insight into the state of AI and automation in cash flow management in 2025, we commissioned a survey of 200 senior finance professionals. Its purpose is to shed light on their current methods, challenges and priorities.

This report was administered online by Global Surveyz Research, an independent global research firm. The survey is based on responses from CFOs, VPs Finance, Directors/Heads of Finance, Controllers, and Treasurers across a mix of industries including tech, E-commerce, real estate, asset- based companies, hospitality, and manufacturing.

Survey participants hailed from companies with an ARR of $50M+ and treasury departments that include 4+ people (25%), 1-3 people (25%), or no treasurers (50%), in the US, UK, DE/FR, and MEA.

What the survey found: Increasing pressure on finance teams to improve efficiency, but continued caution about adopting AI solutions 

The survey revealed that 33% of respondents faced internal operational risks, such as fraud or system breakdowns, over the past year. Additionally, 32% highlighted regulatory constraints, while 27% cited debt obligations with near-term maturities as significant challenges. This convergence of internal and external pressures is compelling organizations to rethink their approach to cash flow management.

To stay resilient, finance teams are focusing on achieving real-time visibility and implementing proactive measures to mitigate risks before they escalate.

According to the survey, areas such as audit and compliance, expense management, transaction categorization, and cash flow forecasting were rated equally as high priorities for AI implementation. These technologies are streamlining traditionally labor-intensive processes, enhancing accuracy, and freeing up valuable resources.

Larger enterprises, in particular, find AI indispensable, as its ability to process vast transaction volumes reduces the burden on finance teams and allows them to focus on strategic decision-making.

The adoption of AI is not without its challenges. Concerns around cost, regulatory compliance, and data reliability remain top of mind for many finance teams. However, the benefits of automation—from error reduction to improved forecasting capabilities—are undeniable. By investing in scalable, AI-driven solutions and prioritizing data quality, companies can future-proof their operations and ensure they are prepared to navigate an increasingly complex financial landscape.

As the 2025 survey highlights, embracing innovation is no longer optional for finance teams. By leveraging AI to overcome liquidity challenges and optimize operations, organizations can transform their cash flow management processes and secure a competitive edge in an era of rapid change. 

Download the full survey report here. 

At growing companies, or companies with lean finance teams without a dedicated treasury function, controllers often find themselves wearing multiple hats. Without a dedicated treasury team, the responsibility of treasury management often falls on their shoulders. This expanded role requires controllers to not only excel in traditional financial functions but also to master the complexities of managing liquidity, mitigating risks, and ensuring financial stability.

Here’s what controllers in lean pre-treasury teams need to know about taking ownership of treasury management:

Juggling complex treasury operations, with lean resources

Without a dedicated treasury team, controllers must take charge of several critical treasury functions:

• Cash Management: Ensuring the organization has sufficient liquidity to meet short-term obligations while avoiding excessive idle cash. This involves cash flow forecasting, tracking accounts receivable and payable, and optimizing cash reserves.
• Risk Management: Identifying and addressing financial risks, including currency fluctuations, interest rate changes, and credit risks. Controllers may need to implement basic hedging strategies and stay vigilant about market trends.
• Debt Management: Managing loans, credit lines, and other forms of debt effectively, balancing costs and flexibility while ensuring compliance with loan covenants.
• Investment Management: Making decisions about surplus funds to maximize returns while maintaining liquidity and mitigating risks.

Understanding and taking ownership of these functions empowers controllers to ensure the organization’s financial health in the absence of a treasury team.

Prioritizing cash flow visibility

For controllers handling treasury responsibilities, cash flow visibility is paramount. Accurate, real-time insights into cash positions enable controllers to:

• Identify and address liquidity gaps.
• Plan for short-term financing needs.
• Optimize working capital.

Leveraging tools like cash management systems and enterprise resource planning (ERP) software can provide controllers with a consolidated view of cash across accounts, currencies, and business units. This visibility is crucial for effective decision-making.

Utilizing technology as a resource to work more efficiently

Controllers in lean teams must rely on technology to handle treasury tasks efficiently. Key tools and innovations include:

• Treasury Management Systems (TMS): Automating processes like cash forecasting, payment approvals, and risk assessments to reduce manual work and enhance accuracy.
• Robotic Process Automation (RPA): Streamlining repetitive tasks such as bank reconciliations and cash position reporting.
• Artificial Intelligence (AI) and Machine Learning (ML): Using AI and ML for predictive cash flow analysis, fraud detection, and scenario modeling.

These technologies not only save time but also help controllers manage treasury responsibilities effectively, even in lean setups.

Mitigating financial risks without dedicated resources

Managing risks becomes more challenging without a dedicated team, but controllers can still establish effective practices:

• Develop straightforward policies for managing foreign exchange and interest rate risks.
• Stay informed about regulatory requirements to ensure compliance.
• Utilize basic hedging techniques or financial products to mitigate risks where appropriate.

Controllers should also focus on regular reporting and analysis to monitor risk exposure and adjust strategies as needed.

Collaborating across functions

In lean organizations, collaboration is essential. Controllers must:

• Work closely with finance and operations teams to gather relevant data.
• Align treasury responsibilities with broader financial goals.
• Communicate regularly with executive leadership to ensure transparency and alignment.

Collaboration helps bridge resource gaps and ensures that treasury management is integrated into the overall financial strategy.

Ensuring regulatory compliance and strong governance

Even in lean teams, compliance cannot be overlooked. Controllers must:

• Stay updated on tax regulations, financial reporting standards, and anti-money laundering (AML) requirements.
• Implement strong internal controls to prevent fraud and errors.
• Use technology to streamline compliance tasks and ensure accuracy.

By focusing on governance and compliance, controllers can safeguard the organization’s financial integrity.

Balancing strategic and operational roles

Controllers managing treasury functions must balance day-to-day operations with strategic planning. This includes:

• Evaluating short-term and long-term financing options.
• Planning for growth initiatives, such as capital investments or expansions.
• Assessing the financial implications of key business decisions.

By adopting a strategic mindset, controllers can contribute to the organization’s financial success while managing immediate treasury needs.

Adapting to dynamic financial environments

Economic and market changes can pose significant challenges for treasury management. Controllers in lean teams must:

• Monitor macroeconomic trends and their potential impacts.
• Adjust strategies in response to changing interest rates, inflation, or currency fluctuations.
• Build contingency plans to address unexpected disruptions.

Adaptability and proactive planning are crucial for navigating an ever-changing financial landscape.

Supporting controllers in pre-treasury teams to manage complex treasury operations

Panax is designed for lean teams with complex treasury needs, so it is a perfect tool for controllers who need to manage treasury. Panax utilizes automation and AI to reduce manual work and increase strategic insights, so controllers can have full visibility over all of their cash. Panax makes cash forecasting and budgeting easy, even without a dedicated team. Panax generates reports so that controllers can get a bird’s eye view of their cash situation, but also deep dive into specific entities or currencies, so they can avoid cash risks and optimize liquidity. Get a Panax demo here. 

Whether managing a Fortune 500 company or a growing mid-market enterprise, maintaining a reliable cash flow forecast means you have the insights to make informed financial decisions. But with multiple methods available, in addition to deciding whether top conduct a direct or indirect forecast, how do you determine which one suits your organization’s needs?

This blog explores eight key cash flow forecasting techniques, their practical applications, benefits, and common challenges, so you can choose the best method that will improve accuracy, visibility, and strategic planning in your financial operations. Let’s get started.

Receipts and Disbursements Method (Including Ledger Unwind)

What it is

The receipts and disbursements method calculates cash inflows and outflows based on expected receipts (e.g., sales, interest income) and disbursements (e.g., payroll, supplier payments) over a defined period. It’s often paired with ledger unwind, where balances from the general ledger are adjusted to reflect anticipated cash movement.

Use Cases

• Short-term forecasting when paired with detailed transactional data. 
• Weekly or monthly cash flow tracking to ensure liquidity management. 
• Businesses with stable, predictable cash inflows and outflows, such as subscription-based models or businesses with fixed payment schedules. 

Benefits

• Provides a granular view of cash movements for precise short-term liquidity planning. 
• Helps identify timing mismatches between cash inflows and outflows, allowing proactive adjustments that avoid cash shortages. 
• Simplifies the reconciliation process by directly linking forecasts to general ledger balances. 
• Enhances accountability across departments as it relies on accurate transactional data inputs from multiple sources. 

Challenges 

• Time-consuming to implement and maintain, particularly in organizations with high transaction volumes or complex operations. 
• Requires meticulous data accuracy and timely updates to keep forecasts relevant. 
• May be less effective for long-term forecasting due to the dynamic nature of business variables and external factors. 

The bottom line: Finance professionals can leverage the Receipts and Disbursements Method for highly accurate, actionable short-term cash flow forecasting.

Rolling Forecasting

What it is

Rolling forecasting predicts cash flow by continuously updating forecasts to reflect the latest financial and operational data. Instead of being limited to a fixed period (e.g. a calendar year), rolling forecasts extend the horizon as time progresses, maintaining a constant forecast window (e.g., forecast for the next 12 months or four quarters). This method allows organizations to swiftly adapt to changes in market conditions and organizational performance.

Use Cases

• Medium to long-term planning, especially in industries with fluctuating revenues or expenses. 
• Organizations that prioritize agility and require frequent updates to their financial strategies. 
• Aligning financial forecasts with strategic business goals, including investment planning and resource allocation.

Benefits

• Provides greater flexibility and relevance by incorporating the most up-to-date data into forecasts, reducing reliance on outdated static projections. 
• Enhances decision-making by offering a forward-looking perspective that adapts to shifts in business objectives and external market dynamics. 
• Facilitates strategic alignment between financial planning and broader organizational goals, efficiently allocating resources. 
• Encourages a culture of continuous improvement and vigilance in financial monitoring, fostering better responsiveness to risks and opportunities.

Challenges

• Demands a high level of coordination across departments for timely and accurate data collection. 
• Can be resource-intensive as frequent updates require advanced tools, processes, and skilled personnel to maintain accuracy and reliability. 
• May become overwhelming for smaller organizations without the infrastructure to manage ongoing revisions and analysis effectively. 

The bottom line: By leveraging rolling forecasting, organizations can move beyond static, reactive approaches to financial planning and adopt a more adaptable framework that supports long-term growth and resilience. To maximize its effectiveness, businesses should invest in technology and analytics that streamline data management and forecasting processes.

Scenario Analysis and What-If Modeling

What it is

Scenario analysis and what-if modeling evaluate potential outcomes and prepare businesses for uncertainty. These methodologies create and analyze multiple scenarios, each based on different assumptions or variables to assess their potential impact on financial performance, operational capacity, or strategic goals.

By leveraging advanced modeling techniques, businesses can anticipate risks, identify opportunities, and develop contingency plans. Decision-makers can test the resilience of strategies under varying conditions, for more informed and agile responses to market dynamics.

Use Cases 

• Businesses operating in volatile markets or those facing uncertainty regarding revenue streams, expenses, or external economic conditions. 
• Useful for evaluating the potential impact of strategic decisions, such as entering new markets, launching products, or adjusting pricing structures. 
• Commonly used in risk management to assess potential outcomes of market fluctuations, regulatory changes, or unforeseen disruptions. 

Benefits 

• Provides a comprehensive understanding of potential risks and opportunities by analyzing diverse scenarios and their financial implications. 
• Enhances decision-making by offering insights into best-case, worst-case, and most-likely scenarios, empowering organizations to plan for contingencies. 
• Supports strategic agility, so businesses can identify and prioritize actions based on robust financial modeling and risk assessment. 
• Encourages proactive management by highlighting vulnerabilities in cash flow under various assumptions, improving preparedness for adverse situations. 

Challenges 

• Requires advanced analytical tools and expertise to build and interpret multiple scenarios effectively. 
• Can create complexity in decision-making if scenarios are overly detailed or numerous, leading to analysis paralysis. 
• Relies heavily on accurate data and realistic assumptions, as flawed inputs can undermine the validity of the analysis. 

The bottom line: By incorporating scenario analysis and what-if modeling into their forecasting toolkit, organizations can build resilience and adaptability, gaining a clearer view of how various decisions and external factors could impact cash flow. When combined with other forecasting techniques, this approach ensures a well-rounded financial strategy that accounts for uncertainty. 

Bottom-Up Forecasting

What it is

Bottom-up forecasting builds cash flow estimates from individual department budgets or projects, consolidating them to form a holistic view. This method is often used in conjunction with top-down forecasting, which starts with an overall target and then allocates resources to various departments or initiatives.  

Use Cases 

• Businesses with a decentralized structure or those that want to align cash flow projections with specific business units. 
• Organizations where departments have unique budgeting processes and can provide detailed forecasts for their areas. 
• Large-scale projects or initiatives where individual budget components contribute significantly to overall cash flow. 

Benefits

• Enables a more accurate forecast by incorporating data from multiple sources instead of relying solely on high-level projections. 
• Encourages accountability and ownership at the departmental level, providing a greater sense of responsibility for meeting financial targets. 
• Facilitates collaboration and communication between teams, fostering a more cohesive approach to cash flow management. 

Challenges

• Requires coordination and consolidation efforts to ensure individual forecasts align with overall projections and assumptions. 
• Can create redundancies or inconsistencies without standardized processes for budgeting and forecasting across departments. 
• May not be suitable for organizations without well-defined budgets or where resources are not allocated by department.

The bottom line:  This dual approach enhances accuracy and ensures that both high-level strategic goals and detailed operational requirements align.

Top-Down Forecasting

What it is

Top-down forecasting uses company-wide revenue projections, applying general assumptions to estimate cash inflows and outflows.

This approach is great for organizations looking to establish a broad financial vision or evaluate high-level strategic goals. By starting with macroeconomic trends, industry benchmarks, and overall corporate objectives, top-down forecasting is a scalable framework that guides resource allocation and identifies growth opportunities.

Use Cases

• Organizations wanting to establish long-term financial strategies or to evaluate the feasibility of ambitious growth targets. 
• Leadership teams and executives to align cash flow forecasts with high-level corporate priorities and market expectations. 
• Beneficial for quick decisions based on big-picture trends, such as entering new markets, pursuing mergers or acquisitions, or scaling operations.

Benefits 

• Streamlines forecasting by focusing on overarching trends and priorities, reducing the need for making sense of detailed operational data. 
• Aligns financial planning with strategic goals, allocating resources according to long-term objectives. 
• Has a quicker turnaround time for creating forecasts, making it valuable in time-sensitive situations. 
• Leverages external benchmarks and macroeconomic data, offering insights that extend beyond internal performance metrics. 

Challenges 

• May lack the granularity needed to address specific departmental or operational nuances, potentially leading to inaccuracies.  
• Relies on high-level assumptions, which can skew forecasts if assumptions are overly optimistic or misaligned with actual conditions. 
• Could result in disengagement at the departmental level if teams are not involved in the forecasting process or do not feel their input is valued. 

The bottom line: Top-down forecasting is most effective when paired with complementary methods such as bottom-up forecasting. This dual approach alleviates the potential limitations of each method, creating a forecasting system that meshes strategic vision with operational detail. 

Trend-Based and Statistical Forecasting

What it is

Trend-based forecasting uses historical cash flow data to identify patterns and extrapolate future performance. Teams sometimes use statistical models like linear regression or machine learning in this approach.

This method is particularly effective for businesses with stable historical data, because it identifies seasonality, cyclical trends, and growth patterns. Incorporating external variables such as market conditions, economic indicators, or industry benchmarks enhances the predictive power of these models, making them essential for data-driven decision-making.

Use Cases

• Businesses with consistent historical patterns, such as retail, manufacturing, or subscription-based services where cash flow trends are predictable. 
• Effective for industries that experience seasonal variations or cyclical fluctuations, allowing businesses to prepare for peak and off-peak periods. 
• Valuable for organizations seeking to integrate data-driven insights into their forecasting processes, particularly when managing complex datasets. 

Benefits 

• Enhances forecast reliability by leveraging historical data and statistical models, reducing reliance on subjective judgment or assumptions. 
• Identifies patterns such as seasonality or cyclical trends, enabling proactive financial management and strategic planning. 
• Supports scenario analysis by adapting models to different conditions or external variables, offering a comprehensive view of potential outcomes. 
• Provides a foundation for continuous improvement, as models can be refined over time to reflect new data and changing conditions. 

Challenges 

• Requires access to high-quality, consistent historical data to ensure model accuracy and reliability. 
• May involve a significant learning curve or investment in tools, software, or expertise to implement advanced statistical methods effectively. 
• Relies heavily on past performance, which may not always predict future conditions, especially in volatile or rapidly evolving markets. 
• Can become complex when incorporating multiple variables or external factors, increasing the need for specialized skills and oversight. 

The bottom line: By leveraging advanced statistical tools, trend-based forecasting can minimize biases and improve accuracy.

Budget Modeling

What it is

Budget modeling is a structured approach to financial planning that creates detailed, scenario-based budgets. It involves developing Financial projections that outline expected revenues, expenses, and cash flows over a specific period, using known variables and potential uncertainties.

Budget models can range from simple spreadsheets to complex, dynamic financial tools that incorporate advanced algorithms and predictive analytics.

‍Use-Cases 

• Organizations that require a comprehensive breakdown of financial plans, such as startups drafting initial budgets or established firms planning for expansions. 
• Project-based industries like construction, software development, or consulting, where precise cost control is critical. 
• Non-profits and public sector entities that must align their budgets with specific funding sources or regulatory requirements. 

Benefits 

• Provides a detailed and transparent framework for understanding financial constraints and opportunities, ensuring alignment with organizational priorities. 
• Facilitates informed decision-making by enabling scenario planning and "what-if" analysis to assess potential outcomes before executing strategies. 
• Enhances accountability and oversight by clearly delineating financial allocations, empowering teams to manage funds efficiently. 
• Encourages proactive identification of potential risks, such as cost overruns or revenue shortfalls, allowing for timely mitigation. 

Challenges 

• Developing and maintaining accurate budget models can be time-consuming, especially for organizations with complex operations or limited financial expertise. 
• Over-reliance on static budget models may fail to capture real-time changes in the market or operational environment, leading to outdated assumptions. 
• Requires cross-functional collaboration to ensure all departmental inputs and needs are adequately represented, which can introduce logistical complexities. 
• Implementation of advanced tools or software may require significant upfront investment and training, straining short-term resources. 

The bottom line: This method allows organizations to simulate different scenarios, evaluate the financial impact of strategic decisions, and allocate resources effectively.

Driver-Based Forecasting

What it is

Driver-based forecasting identifies and models the key drivers of business performance. These drivers—metrics or variables directly influencing revenues, costs, or profitability—form the foundation of the forecasting process. 

By concentrating on these underlying factors, organizations can achieve a more actionable, dynamic view of their financial performance. Driver-based forecasting typically leverages advanced tools and data analysis techniques to connect operational activities to financial outcomes, so organizations can  quickly react to changing business conditions.

Use Cases 

• Organizations operating in dynamic industries where rapid changes in demand, competition, or market conditions can impact performance. 
• Businesses with complex, multi-layered operational structures, such as manufacturing firms or retail chains, where small changes in input variables can have a large financial effect. 
• Scenario planning, allows companies to adjust forecasts based on fluctuations in key performance indicators (KPIs) such as sales volume, production costs, or customer acquisition metrics. 
• Organizations seeking to align financial planning with broader strategic goals, ensuring decisions are grounded in measurable, real-world factors.

Benefits 

• Improves forecast accuracy by focusing on the direct impact of specific, measurable drivers rather than high-level assumptions. 
• Enhances agility by enabling organizations to quickly update forecasts in response to real-time changes in key variables. 
• Facilitates better collaboration across departments, as teams can identify and monitor shared drivers that affect both operational and financial outcomes. 
• Promotes strategic alignment by ensuring forecasts are closely tied to business objectives, such as growth targets or cost efficiency goals. 
• Encourages a culture of data-driven decision-making by linking day-to-day operations to long-term financial results.

Challenges 

• Effectively identifying the right drivers can require significant data analysis and domain expertise to ensure relevance and accuracy. 
• Dependency on accurate, real-time data for drivers, can be challenging to obtain or maintain without robust technology infrastructure. 
• Integrating driver-based models with traditional financial systems may involve significant time and resource investments and/or the need for specialized knowledge. 
• Risk of overemphasizing certain drivers, potentially neglecting broader market trends or external factors that can impact performance. 
• Complexity increases as organizations scale, potentially requiring continuous investment in tools and training to sustain the value of driver-based forecasting.

Driver-based forecasting empowers organizations to move beyond static, assumption-heavy methods, for a deeper understanding of what drives financial success. Incorporating detailed, data-driven insights into strategic planning helps businesses make informed decisions, adjust rapidly to challenges, and position themselves for long-term growth. When used in tandem with other methodologies, such as trend-based forecasting or budget modeling, driver-based approaches add significant depth and precision to financial management practices.

The bottom line: Rather than using static inputs, driver-based forecasting identifies key business drivers (e.g., sales targets, and headcount costs) to estimate cash flow.

Building a Future-Forward Cash Flow Strategy

Adopting the right cash flow forecasting method is not just about efficiency; it’s about enabling smarter, faster, and more strategic decision-making. As a financial leader, your ability to Implementing tailored forecasting approaches can drive your organization’s resilience and long-term competitiveness.

If you’re ready to upgrade your company’s financial forecasting capabilities, explore advanced AI tools that seamlessly integrate data insights, real-time updates, and scenario planning. A streamlined forecasting platform will save countless hours of manual work and ensure your forecasts remain accurate and actionable.

Panax offers exactly this. Panax’s Automation and AI-driven forecasting is streamlined, flexible and accurate. It’s easy to set up and use, even by lean teams, and uses a combination of ERP data, together with AI for accurate forecasting. Most importantly, Panax’s cash forecasting solution is flexible, so you can tailor it to your company needs, and also adapt the forecast manually, as needed. Panax’s forecast is also smart, providing you with strategic insights to help you optimize your company liquidity.

Ready to empower your finance team—start building more efficient and accurate forecasts today.

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Cash flow forecasting (CFF) is essential in the modern finance world because it predicts incoming and outgoing cash, giving decision-makers more room to make informed decisions. 

It’s a powerful ally for planning and risk management, but it does come with challenges. During the next few minutes, we’ll cover the advantages and disadvantages of cash flow forecasting. 

Why Cash Flow Forecasting is Crucial for Financial Planning

Before understanding its pros and cons, let's talk about why cash flow forecasting matters. Good cash flow management ensures your business can meet short-term obligations, identify potential liquidity crises, and pave the way for strategic decision-making.

But how impactful is forecasting? With treasury technology advancing and predictive tools becoming more powerful, businesses that leverage cash flow forecasting are significantly better prepared for market uncertainties, according to McKinsey's research on financial planning.

If part of your role involves optimizing finances, you'll want to ensure you're maximizing the benefits of cash flow forecasting while staying aware of its limitations.

Advantages of Cash Flow Forecasting

1. It Anticipates Cash Shortages and Surpluses

One of the main advantages of cash flow forecasting is its ability to predict cash shortages or surpluses. This foresight allows finance managers and treasury teams to avoid cash constraints or maximize lucrative opportunities.For instance, spotting a surplus early could lead to better short-term investments or debt repayments, while identifying potential shortages means businesses can secure lines of credit in advance.

Insight: Forewarned is forearmed; projections protect liquidity.

2. It Enhances Investment Planning

Treasury teams often look for opportunities to grow idle cash. Forecasting done correctly helps finance professionals identify excess funds that can be invested for higher returns.

Advanced cash flow management tools achieve even more, helping businesses prioritize investments that align with their risk tolerance and offer optimal returns. For instance, treasurers could use forecasting insights to park surplus cash into low-risk bonds or high-interest saving accounts.

Insight: By identifying free cash early, you can boost your ROI on excess funds by up to 20% while reducing idle cash costs.

3. CFF Facilitating Scenario Analysis

What if revenue plummets by 15%? What if raw material prices spike? Scenario planning allows businesses to visualize the potential financial impact of various situations before they occur. With current finance tools integrated with forecasting models, scenario analysis enables real-time adjustments that were previously impossible without heavy manual effort. 

Insight: Scenario analysis is essential during volatile economic periods, such as global supply chain shortages.

4. Improved Cost Control

Knowing when and where your cash flows also means knowing where inefficiencies lie. Cash flow forecasting is a clear roadmap to achieving cost control company-wide by analyzing expenditure patterns. Example: A logistics company discovers unnecessary vehicle idling costs due to lapses in its supply chain, saving $10,000 annually through predictive insights.

Insight: Armed with this insight, teams can highlight unnecessary costs and reform spending habits for better financial hygiene.

5. It Optimizes Receivables Management

For businesses with multiple streams of revenue (e.g., client payments or subscriptions), cash flow forecasting enhances receivables management by predicting incoming payments. Essentially, i AR teams can plan better collection strategies for consistent inflow.

This means fewer delays in payments, clearer timelines for processing, and better decision-making for planned expenses.

Insight: Businesses often integrate receivables forecasting tools like Panax to send automated reminders, improving collections by 25% without overburdening staff.

Disadvantages of Cash Flow Forecasting

Despite its benefits, forecasting isn’t immune to challenges. Here are some prevalent limitations you should weigh before relying on it too heavily.

1. A Reliance on Estimates

Forecast accuracy often comes down to the quality of the inputs—and cash flow forecasting relies heavily on estimates. While these inputs are based on historical and current data, unforeseen changes can cause variances.

Whether it's fluctuations in customer behavior, last-minute capital expenditures, or global market shifts, relying on estimated outcomes means that even slight misjudgments could alter the entire projection.

Consider: Studies indicate that small underestimations in receivable timings can erode profit margins marginally over a quarter but create ripple effects later.

2. There Are Unpredictable External Factors

Economic uncertainty, a sudden change in regulations, or geopolitical disturbances—No forecasting model can predict these events with complete accuracy.

For instance, supply interruptions during the 2020 lockdowns were largely unanticipated and severely affected traditional forecasting approaches. Reliance on rigid forecasts in such events can leave companies unprepared.

Consider: You need a backup plan when forecasts go awry.

3. A Dependence on Historical Data

Forecasting models rely significantly on historical data trends. Although this data provides a foundation, relying on it assumes the future will largely mimic the past, which isn’t always the case.

A small e-commerce business that doubled sales after a one-time influencer marketing campaign might falsely anticipate sustained growth.

Consider: An advanced AI cash flow management solution can generate insights specifically tailored for your business for more foolproof predictions. 

‍4. Potential for False Security

A well-prepared forecast can sometimes create overconfidence in management decisions. This false sense of security can lead to over-investments or taking fewer precautions.Companies banking purely on achieved forecast margins might overlook their need for contingency planning, leaving them vulnerable to uncertainties.

Consider: Be proactive in preparing for unexpected events by creating one view of all your company’s cash, investments, and credit accounts. Then, set aside money where appropriate. 

‍5. It’s Time-Consuming 

Traditional cash flow forecasting models can be labor-intensive. Manual data entry, validations, and updates require significant time and expertise small teams often lack without automation.

Consider: Enterprises are turning to automated AI-based tools like Panax to streamline cash flow inputs and projection generation, significantly freeing up time and reducing manual errors.

Harnessing Cash Flow Forecasting for Your Business

Forecasting is invaluable, but its effectiveness depends on the tools and methodologies you employ. By addressing its limitations—through automation, scenario modeling, and real-time updates—your business can unlock a more resilient and future-ready financial strategy.

Cash Forecasting with Panax

Panax's Cash Forecasting uses the latest connectivity and AI technology to provide a streamlined, flexible and accurate forecasting solution. Panax’s forecast is easy to build and easy to manage, and can be tailored to fit your business needs. Panax helps companies of all sizes to run cash forecasting, even lean teams who don’t have the resources to manage a legacy TMS.

Panax uses AI and Automation, as well as your ERP data to create an accurate rolling forecast that can be manually updated when necessary, keeping your team in control.

As finance teams face increasing pressure to do more with less, automation has become a critical tool for improving efficiency and accuracy. However, implementing new systems and processes can be a significant challenge, especially for lean teams that are already stretched thin. 

In a recent webinar, treasury experts Tracey Knight, Eugene Spevakov and Niv Yaar  discussed the key considerations for lean finance teams looking to automate their treasury operations. Here are the top takeaways:

When is the right time to automate cash management processes?

The experts agreed that companies should look to automate as soon as their treasury operations start to become more complex, such as adding more bank accounts, entities, or currencies. Tracy Knight of Real Treasury noted that the ideal time is before teams become overwhelmed, so they can focus on strategic priorities rather than repetitive daily tasks.

Eugene Spevakov, formerly a treasurer at companies like AT&T and Finjan, identified three key factors that determine the right timing: the complexity of treasury operations, the specific requirements of the business, and the overall maturity of the finance tech stack. He emphasized the importance of being proactive rather than waiting until processes start to break down.

Niv from Panax added that lean teams often realize they need to automate when they start losing visibility and control over cash - for example, struggling to have the right currency available at the right time or being surprised by cash shortages or surpluses. Automating processes can help regain that control and visibility.
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Automation empowers lean finance teams to manage complex treasury operations efficiently, minimizing errors and freeing up resources for strategic initiatives

Overcoming implementation challenges

One of the biggest obstacles that lean teams face is simply finding the time to properly plan and execute an automation project. Tracy recommended backfilling regular job responsibilities so that team members can dedicate the necessary time and attention. 

Eugene stressed the importance of having an internal champion at the executive level, as well as buy-in from the IT team. Defining the right scope for the project is also critical - teams should focus on addressing their most pressing needs rather than trying to automate everything at once.

Niv highlighted the technical challenges around data connectivity and categorization, noting that this is a key area where lean teams often struggle. Automating the categorization of transactions can provide a strong foundation for building other treasury workflows.

Where should lean teams start with automating cash management?

When it comes to prioritizing which processes to automate first, the experts pointed to a few key areas:

• Cash visibility and positioning: Aggregating balances from multiple bank accounts into a single system is a common first step, as it eliminates the need for manual data entry and provides real-time visibility.
• Cash forecasting: Even a basic, short-term cash flow forecast can make a big difference, helping teams identify potential shortfalls or surpluses and make more informed decisions.
• Reporting and dashboards: Automating the generation of standard treasury reports and dashboards can save significant time, especially if the finance leadership requires frequent updates.
• Debt and FX management: Tracking debt balances, interest payments, and foreign exchange exposures are other areas where automation can provide value.

The experts emphasized that lean teams should focus on quick wins that provide immediate benefits, rather than trying to tackle everything at once. Niv noted that the key is to automate processes in a way that reduces reliance on spreadsheets and manual work.

Essential TMS or Cash Management features for lean teams

When evaluating treasury management systems or other automation tools, the experts said lean teams should prioritize ease of use and ease of implementation above all else. Tracy noted that the system needs to be intuitive enough for the entire team to use effectively, not just a small group of power users.

Eugene added that the implementation process itself needs to be straightforward, so that teams can start realizing benefits quickly rather than getting bogged down. He also stressed the importance of aligning the system's capabilities with the team's specific requirements.

Niv highlighted the need for automation tools to not just streamline data and processes, but also provide proactive insights and alerts. Things like excess cash notifications, liquidity policy violations, and collections anomalies can help lean teams stay on top of critical issues.

Overall, the experts agreed that automation is essential for lean finance teams dealing with complex treasury needs. By focusing on the right priorities and selecting the appropriate tools, these teams can regain control, improve visibility, and free up time to focus on more strategic initiatives. The key is to start small, prove the value, and then expand the automation footprint over time.

Want more tips from the experts? Sign up here to listen to the recording, and get all the tips for more effective cash management in 2025.

In a recent conversation between Adi Barak, VP of Product at Panax, and Joel Jeselsohn, VP of Finance at Tangoe, the two finance experts dove deep into the challenges and opportunities facing finance teams around cash forecasting, especially for mid-sized global companies. They touched on topics such as the impact of inflation, the importance of cash forecasting, and the role of automation and AI in financial processes. Here are the main takeaways from their discussion.

The Case for Automation in Cash Forecasting

Both Joel and Adi stressed the advantages of automation in cash forecasting, pointing out that it minimizes errors, boosts efficiency, and allows teams to focus on higher-value tasks. Manual processes, such as data collection and tagging transactions, are time-consuming and prone to error. By automating these processes, finance teams can free up time for data analysis and decision-making, ultimately creating more value for their organizations.

Joel shared his own experience with automating Tangoe’s forecast, revealing that while their manual processes were “good enough,” automation took their forecasting to the next level. The shift allowed Tangoe to scale its operations without increasing headcount, improved team morale, and enabled the company to extend its forecast horizon from 13 weeks to as far as 12 months.

By automating cash forecasting processes, finance teams can free up time for data analysis and decision-making, ultimately creating more value for their organizations

Managing the Risks of Automation

Despite the clear benefits, Joel and Adi acknowledged that automation comes with risks, such as the potential for low adoption and integration issues with existing systems. They recommended ensuring that finance teams remain hands-on, focusing on analyzing data rather than becoming too reliant on automation tools.

Another challenge is that forecasts are only as good as the data that goes into them. Automation tools should be carefully monitored to ensure that they accurately reflect the financial health of the organization, and finance teams must remain vigilant in identifying any potential errors or discrepancies.

AI’s Role in Financial Forecasting: Hype or Reality?

Joel and Adi both agreed that AI is not just hype; it holds real promise for improving financial processes, especially in forecasting. AI excels at analyzing historical data and generating projections much faster than human analysts. However, they pointed out that AI is not a replacement for human oversight, particularly when it comes to decision-making in unique or unpredictable situations.

For instance, AI might not be able to account for significant events like acquisitions unless explicitly programmed to do so. Where AI can add value is in running multiple scenarios simultaneously or predicting customer payment behavior based on past trends, providing finance teams with more accurate forecasts.

Measuring Forecast Accuracy and Reporting

When it comes to measuring the accuracy of forecasts, Joel stressed the importance of comparing actual results to the forecasts made weeks or months earlier. This approach allows teams to fine-tune their models, identify trends, and adjust forecasts as business conditions evolve. Accurate forecasting depends on regular evaluations and the ability to quickly pivot when unforeseen circumstances arise.

AI and Automation are the future of finance, but only when managed by the finance team, and not replacing the finance team.

As automation and AI become more integrated into financial processes, the role of finance teams is evolving. Rather than focusing on manual data entry and basic tasks, finance professionals are now empowered to focus on strategic analysis and decision-making. Both Adi and Joel made it clear that embracing these technologies is no longer optional—it’s essential for staying competitive in today’s fast-paced business environment.

Automation and AI offer finance teams the tools they need to navigate an increasingly complex financial landscape, but human oversight and expertise remain critical. As companies continue to adapt to this new reality, those that successfully integrate these technologies into their operations will be better positioned to thrive in a post-pandemic world.

Watch the full recording of the webinar here, or click here to download our e-book, for a deep dive into AI and Automation in Cash Forecasting. 

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Maintaining a healthy cash flow is essential for any company. To achieve this, finance managers must master accounts receivable reconciliation (ARR)—matching the figures of unpaid customer billings to the accounts receivable total reported in the general ledger. With ARR, also known as Cash Application, your business can produce accurate financial reporting, enhance cash management, and make informed strategic decisions.ARR also helps businesses with:

• Error detection
• Fraud prevention
• Customer relations  
• Audit readiness 

Here’s how to execute accounts receivable reconciliation. 

Step-by-Step Accounts Receivable Reconciliation Process

Step 1: Gather Necessary Records

Begin by collecting all relevant financial records (e.g. customer invoices, payment records, credit notes, and bank statements).  During the collection stage, we suggest storing records systematically, whether digitally or in physical files, for quick access.

It's also good practice to categorize your records by customer or time period. This lends a more streamlined reconciliation process, and reduces the likelihood of overlooking important data. Modern accounting software can further simplify this task with automated record-keeping and easy retrieval.

Step 2: Compare Customer Payments with Invoices

Next, compare customer payments with issued invoices to identify mismatches between what customers owe and what they have paid.  Match each payment with its corresponding invoice, aligning the amounts with the dates. 

During this stage, you might encounter discrepancies such as partial payments, overpayments, or missing payments. Highlight or note these so you know what to investigate later on. Whichever method you use to flag variances,  using a consistent method makes the reconciliation process easier and ensures it’s up to date. 

Step 3. Reconcile Ageing Reports

Next, reconcile the accounts receivable aging reports, matching the periods up with the outstanding balances. You’ll first review the aging report, which categorizes receivables based on how long they have been outstanding. Verify that the totals on the aging report match the general ledger’s accounts receivable balance. You may notice discrepancies due to transactions not recorded or categorized in earlier steps—this will require further investigation and adjustments. In this stage, you’ll also flag overdue accounts that need follow-up or corrective actions.

Adjustments or write-offs may be necessary for balances deemed uncollectible, requiring formal documentation and approval. The purpose of reviewing aged receivables is to shed insight into customer payment patterns and potential cash flow challenges.

Step 3: Investigate and Resolve Discrepancies

In step three, you’ll address all discrepancies. Begin by investigating the cause of each discrepancy, looking into factors such as data entry errors, incorrect invoice amounts, or communication lapses with customers. Utilize your team members’ knowledge to understand discrepancies that aren't clear from the records. You can also reach out to customers for clarification to resolve misunderstandings and facilitate payment adjustments.

Once you ascertain the causes, rectify the discrepancies by  updating records and communicating changes to stakeholders. This not only resolves immediate issues, but helps prevent similar discrepancies in future reconciliations.

Step 4: Adjust Ledger Entries

Make any necessary adjustments to your accounting records. This could be posting journal entries to correct amounts or adjusting balances in your general ledger. 

Double-check calculations and that all adjustments follow the company's financial policies and procedures. Once you’ve affirmed the adjustments, carefully document and authorize them by the appropriate personnel to maintain transparency. 

Step 5: Reconcile Regularly

The final step is regular reconciliations. Conducting regular reconciliation ensures that your accounts receivable records stay accurate, up-to-date, and reflective of your company's financial health. Establish a consistent schedule for reconciliation, whether monthly, quarterly, or as needed based on your business's transaction volume.

Regularly reviewing and reconciling accounts receivable allows you to identify potential issues early on, minimizing the risk of financial misstatements and cash flow disruptions. It also provides valuable insights into customer payment behaviors, aiding in better cash flow management and strategic planning.

By incorporating regular reconciliation into your financial processes, you maintain financial integrity and build trust with stakeholders.

Tips & Best Practices in Accounts Receivable Reconciliation

1. Leverage Technology: Invest in ARR software that automates reconciliation tasks and provides real-time updates on payment statuses. Technology streamlines the process and reduces the likelihood of errors.

2. Foster Collaboration: Encourage communication between your finance team and other departments involved in the reconciliation process for smoother collaboration.

3. Prioritize Training: Provide ongoing training for your finance team to stay up-to-date with industry trends, software tools, and accounting standards.

4. Reduce Key Personnel Dependency: Train multiple team members on reconciling accounts receivable to minimize the impact of any single person's absence.

5. Standardize and Document Procedures: Establish consistent procedures for reconciliation, including documentation and approval processes. This ensures consistency in the process and provides a reference for future reconciliations.

6. Regularly Review Aged Receivables: Consistently review aging reports to identify potential issues early on, such as late-paying customers or high-risk accounts.

7. Utilize Checklists: Checklists are a valuable tool for keeping track of completed reconciliation steps, from verifying invoice details to posting adjustments. Checklists can also help to delegate responsibilities within the team.

How Automation Improves Accounts Receivable Reconciliation 

Automation can significantly organize and consolidate the accounts receivable reconciliation/ cash application process by automating manual tasks and reducing errors. Here's how it works:

Easy integrations: Effortlessly connecting all your company’s financial institutions around the globe to one centralized platform provides a real-time view of where cash is going and shows updates across all financial software. 

Automated ERP matching: Some solutions such as Panax connect to your ERP, map your general ledger to cash, and automatically categorize your inflows and outflows, making collecting relevant data painless.

Automated reporting: Auto-generated reports can answer cash-related questions quickly and shed light on discrepancies. 

Proactive messaging: Proactive alerts keep reconciliation top of mind and help you stay on track while completing the checklist. Alerts also encourage more transparency, as financial teams can notify leadership as soon as they’ve completed a task or made a change.‍‍

Master Accounts Receivable Reconciliation

Accounts receivable reconciliation is a crucial function for a finance department. By following a structured process, addressing common challenges, and implementing best practices, you can ensure an accurate ARR. Regular reconciliation not only enhances cash flow management but also supports strategic decision-making, giving your company a competitive edge in today's dynamic business landscape.

Make Accounts Receivable Reconciliation more efficient with Panax  

Panax’s Cash Application makes AR Reconciliation easy. Panax’s proactive, automated matching uses AI driven algorithms to take the workload off, but leaves you full control over the final approval. You can see all finalized matched pairs of transactions, making it easy to run a final review. All records are automatically created back in the ERP, so your books are up to date. Get in contact to find our more

Managing cash flow across hotel chains can be complex, especially if each property operates as its own legal entity with separate bank accounts. While offering benefits like reduced cash risk and tax advantages, this structure creates unique challenges for the CFO or controller overseeing cash management for the entire chain. 

Every hotel has inflows and outflows—from collecting guest payments or management fees to covering operational expenses, capital expenditures and loan repayments—resulting in substantial daily cash movement. This situation is further complicated when these cash movements are spread across a multitude of accounts, making centralized oversight difficult and increasing the need for smart and flexible cash management solutions.

Lean finance team, complex treasury needs

For many hotel chains, which tend to be run by lean financial teams, a major challenge is maintaining visibility across numerous accounts and assets. They’re not necessarily cash-rich, particularly during seasonal downturns. This can create an ongoing struggle to balance credit lines and manage cash flow. 

Given this volatility, financial teams need systems with real-time alerts and comprehensive visibility to track funds quickly and efficiently across all properties. Without such tools, the process of gathering information and making cash management decisions can become time-consuming and cumbersome, posing a potential risk to daily operations.

Large transaction volumes to track

A further complication is the sheer volume of transactions each hotel processes daily, including guest payments, management fees, supply orders, vendor payments, and loan repayments. With the high level of transactional activity, hotel chains need efficient ways to aggregate and interpret these data points. 

Navigating seasonal peaks & drops

Consolidating daily reporting is essential for the finance team to keep a pulse on liquidity, monitor cash inflows and outflows, and make data-driven decisions. However, without efficient reporting, managing this complexity can become a logistical challenge, particularly in chains with multiple properties under one umbrella.

The seasonal nature of the hotel business compounds these cash management challenges. During peak seasons, cash flow is typically strong with increased guest spending; the offseason often brings a slowdown making it difficult to maintain consistent cash reserves.

Financial leaders in the hotel industry must prepare for these fluctuations by ensuring robust cash flow planning and having strategies in place to stabilize liquidity during off-peak periods. This includes setting up contingency funds and carefully managing credit lines, which requires precise timing and a deep understanding of the chain's financial pulse.

Cash management across hotel chains demands a delicate balance between visibility and seasonal planning. Finance professionals managing hotel chain cash flow need tools that offer both daily reporting and high-level views of liquidity to make proactive, informed decisions.

By prioritizing cash flow management and using advanced cash management solutions, hotel chains can overcome these challenges, ultimately supporting long-term growth and stability in an industry prone to volatility.

How Panax’s AI driven platform can support hotel finance teams

Panax’s cash management platform offers a powerful solution to cash visibility and mitigates challenges faced by hotel chains. With the capability to consolidate data from each hotel’s accounts into a single, comprehensive dashboard, Panax provides Treasurers, CFOs and controllers with real-time insights into cash flow across properties. This centralization makes it easy to monitor cash positions at a glance, facilitating quicker, more informed decision-making. 

Panax’s customizable alerts ensure that finance teams are immediately notified of any significant cash movement, unexpected expenditures, or potential shortfalls, allowing them to address issues proactively. By connecting directly to the banks, together with integrating seamlessly with existing financial systems, Panax helps streamline the entire cash management process—especially valuable for lean financial teams managing complex, high-volume transactions.

Panax leverages AI and automation for flexible cash flow forecasting, a critical need in the hotel industry given its seasonal fluctuations.

By automating repetitive tasks and applying machine learning to analyze historical trends, Panax’s solution reduces the manual workload on financial teams and increases forecasting accuracy. This not only helps maintain stability during slower seasons but also supports long-term financial planning, ultimately giving hotel chains better long-term liquidity. 

‍Get in contact with us to see how Panax can work for you.

Accounts receivable reconciliation, also known as cash application, is when you match outstanding customer invoices with the money received. This process ensures all payments are recorded and accounted for correctly in the company’s books. Reconciliation is essential for keeping accurate financial records and to correctly assess and manage cash flow.

Why is AR Reconciliation Important?

Conducting accounts receivable (AR) reconciliation provides accurate and reliable financial records by matching invoices with payments. This helps finance teams identify and address any discrepancies, stay compliant with financial reporting standards, and give stakeholders a transparent view of the company’s financial position.

AR reconciliation also enhances cash flow management by showing outstanding receivables and allowing finance leadership to address late payments and alter their collections processes.

On a strategic level, AR reconciliation gives business executives the tools to make more informed decisions about credit policies, customer relationships, and risk management, all of which allow the organization to meet profit goals.

General Ledger, Sub-Ledgers & Double-Entry Bookkeeping

There are three elements involved in recording accounts receivable: the general ledger, sub-ledgers, and double-entry bookkeeping. 

The general ledger is the central record that lists an organization's financial data and all transactional information.. 

Sub-ledgers are records of individual transactions that allow accountants to manage and reconcile specific entries or specific customer accounts.

Double-entry bookkeeping utilizes both general ledgers and sub-ledgers so that each transaction is recorded in at least two accounts. Having two records of transactions makes it easier to spot missing or incorrect data and quickly address the issue.  With double-entry bookkeeping, accountants keep meticulous financial records that protect them from everything from fraud to noncompliance.  

Step-by-Step Guide to Performing Accounts Receivable Reconciliation

Here’s a breakdown of how accounts receivable reconciliation works:

1. Collect all relevant data:  Gather documents such as customer invoices, payment receipts, bank statements, and any other relevant financial records. Verify that these documents are correct and up to date.
2. Review the accounts receivable ledger: Examine the accounts receivable ledger for outstanding balances. Then, check this information against customer account statements to ensure all recorded transactions are accurate and complete.
3. Compare invoices to payments received: Match each customer invoice with bank statement payments. Flag instances where payments were incorrectly allocated or missing.
4. Identify and investigate discrepancies: Analyze any inconsistencies between invoices and receipts. This may involve looking at invoice numbers, dates, and amounts. Reach out to customers or financial institutions to resolve any issues. 
5. Adjust and rectify records: Tweak your records to reconcile issues by correcting errors in data entry, updating transaction dates, or reassigning payments to the correct accounts.
6. Document the reconciliation process: Maintain detailed documentation of the reconciliation process, noting discrepancies and how you resolved them. Keep all records on hand in case of audits or future reconciliation activities.
7. Review and approve: After making adjustments, conduct a final review of the reconciled accounts, reviewing your work.. Submit the reconciliation for approval with the relevant company executive to validate the financial statements.

Challenges in Accounts Receivable Reconciliation

While accounts receivable reconciliation is crucial for financial accuracy, it does come with challenges, such as:

• Inefficient processes: Manual account reconciliation is time-consuming, especially for businesses with large transaction volumes. 
• Data entry errors: Accounting for high volumes of transactions, which can lead to data entry errors or missed entries. 
• No standardization: Manual methods usually don’t have a standard reconciliation process for every department, leading to inconsistencies and errors. 
• Risk issues: By only looking at matching the fields and ignoring patterns in the data, businesses can miss potential fraud.
• Lack of visibility: Dealing with huge volumes of data makes it more difficult to track all the changes made in the reconciliation process, especially with multiple stakeholders. Lack of visibility and accountability can result in disconnected spreadsheets, more bottlenecks, and potential errors.  
• Different payment terms: Differing customer payment terms and methods can complicate the reconciliation process.

Tips for Smooth AR Reconciliation 

Consider implementing the following tips for a smooth and efficient AR reconciliation process. 

1. Use a checklist that outlines all the steps and data required for the reconciliation process. This ensures consistency in every cycle and within every department. 
2. Coordinate with all relevant team members to ensure they understand their roles in the reconciliation process.
3. Strategically time reconciliations with your business cycle and financial reporting requirements for timely insights.
4. Use advanced software that can show reconciliation data in an intuitive way to help identify patterns or anomalies that may not be obvious in traditional spreadsheet formats.
5. Use the insights from resolving discrepancies to optimize your reconciliation processes and business practices. This could mean updating reconciliation checklists, improving data collection methods, or fixing communication issues among team members.

When to Perform Accounts Receivable Reconciliation

Typically, companies perform monthly reconciliations as part of the closing process. When to perform AR reconciliation can also depend on factors such as significant changes in monthly sales volume, or a large influx of payments. In these situations, a more frequent reconciliation schedule might be more advantageous.

For the most accurate and compliant records, you may want to prioritize AR reconciliation during audits, or when preparing for tax filings. Strategically timing these activities will help you quickly flag and correct inaccuracies, improving operations and financial transparency.

Smart, Ai driven AR Reconciliation

Panax automates AR Reconciliation, so lean finance teams with complex treasury needs can work more efficiently, and with less data errors. Panax’s proactive, automated matching cash application uses AI driven algorithms to take the workload off, but leaves you full control over the final approval. The matched transactions in Panax are automatically created back into the ERP, so your books are up to date. 

To get a personalized demo of AR Reconciliation within Panax, click here. 

Direct cash flow forecasting, sometimes known as the 'receipts and disbursement method,' predicts future cash inflows and outflows by collecting expected cash receipts and payments over short-term periods, usually weeks or months. Focusing on detailed operational data such as customer payments and vendor obligations creates more precise direct cash flow forecasts.

How to Build a Direct Cash Flow Forecast

Step 1: Gather data on expected cash inflows like customer payments, loan proceeds, and other impending revenue sources.

Step 2: Identify all anticipated cash outflows such as supplier payments, payroll expenses, rent, utilities, and other cash expenditures.

Step 3: Create a weekly or monthly timeline to organize and sort cash inflows and outflows, marking expected dates. 

Step 4: Compile the detailed transaction data for each period to map out the expected cash movements.

Step 5: Analyze the specific periods of cash surpluses and deficits by comparing the total cash inflows against the total cash outflows.

Step 6: Adjust the forecast for any predicted changes in operational activities, pricing, or external factors that can influence cash transactions.

Step 7: Regularly review and update the forecasted data to ensure it aligns with real-time business activities and market trends.

Indirect Cash Flow Forecasting

Indirect cash flow forecasting uses historical financial statements to predict future cash flows. Examining the relationship between net income and changes in balance sheet accounts (e.g. accounts receivable and payables) provides an indirect view into cash inflows and outflows. Although less detailed than direct forecasting, this method captures the overall financial picture, while anticipating future cash needs.

For the indirect approach, you’ll likely use the following primary methods: 

• Adjusted Net Income (ANI): This method begins with net income and adjusts it for non-cash items, such as depreciation and amortization. By reconciling these figures, ANI provides a clear picture of actual cash generated by operations, helping businesses create more accurate projections.
• Pro Forma Balance Sheet (PBS): Here, you’ll use a forward-looking balance sheet to estimate future financial standing. By forecasting changes in assets and liabilities, PBS anticipates future cash flows and identifies potential liquidity challenges.
  
• Accrual Reversal Method (ARM): This approach reverses accruals to convert accrual-based net income into cash flow. Noting the timing differences between earning revenues and incurring expenses aligns projected net income with the expected cash position.

To sum it up, direct forecasting relies on real cash flow data, although it’s less reliable in the long run as you’ll eventually run out of data. Indirect forecasting uses projected financial statements, which are helpful in long-term planning.

The direct method offers a detailed view of actual cash movements, making it ideal for short-term management, while the indirect method provides a broader perspective suitable for long-term strategic planning

How to Create an Indirect Cash Flow Forecast

Use the steps below to create an indirect cash flow forecast:

Step 1: Gather historical financial statements (e.g. historical income statements, balance sheets, and cash flow statements) going back at least 12-24 months. This information is the foundation of your forecast.

Step 2: Define the forecast period as monthly, quarterly, or annually, depending on your business's needs and the level of detail needed.

Step 3: Use your company's historical or projected income statement to Identify the net income figure for each period within your forecast period.

Step 4: Identify and adjust for non-cash items that affect net income but do not impact cash flow. 

Step 5: Analyze changes in working capital items (e.g. accounts receivable, accounts payable, and inventory) that can significantly affect cash flow. Calculate the change in each item for each period in your forecast. 

Step 6: Factor in capital expenditures (CapEx). These represent cash outflows for purchasing assets such as equipment, machinery, or property. Estimate when these expenditures will occur during your forecast period.

Step 7: Consider financing activities that affect cash flow, such as:

• Include any loans or credit facilities that provide cash inflow
• Principal repayments, which are cash outflows
• Capital raised through equity issuances

Step 8: For each period in your forecast, calculate the change in cash by adding or subtracting the adjustments in steps 4, 5, 6, and 7 from the net income figure (step 3). The result is the net cash provided by (or used in) operating activities.

Step 9: Start with the cash balance for the first period in your forecast and calculate the ending cash balance for each period by adding the change in cash (step 8) to the beginning cash balance of that period.

Step 10: Regularly update and review your cash flow forecast through the forecast period. Compare actual results to your forecast, and make adjustments to reflect changes in business conditions, assumptions, or strategies.

Before selecting a method, it helps to familiarize yourself with the advantages and disadvantages of each option.

Advantages of the Direct Method

Simplicity: Directly recording cash inflows and outflows allows for straightforward tracking and an understanding of cash positions. 

Immediacy: The direct method captures real-time cash movements, making it ideal for preparing daily and weekly reports for short-term decision-making. 

Accuracy:  Businesses can gauge their liquidity with a bottom-up approach, minimizing errors that can occur in more complex forecasting methods. 

Small Companies: Its simplicity and transparency help entrepreneurs without extensive financial backgrounds to effectively manage their finances. 

Disadvantages of the Direct Method

Resource intensive: The direct method requires  detailed tracking of every transaction t. This level of detail can be time-consuming, especially for businesses with a large volume of transactions.

Short-term only: This method is less effective for long-term forecasting. It focuses on upcoming transactions which might not provide a complete financial picture over an extended period.

Non-Cash Transactions Overlooked: By focusing solely on cash transactions, Direct ignores non-cash factors, which can lead to inaccurate forecasts for businesses with more complex accounting structures. 

Dependency on Historical Data: Past data isn't always a reliable predictor of future conditions, particularly in rapidly evolving industries. Historical data means relying on indirect forecasting, which may not be able to adapt to market shifts or unexpected changes. This can result in cash flow mismatches.

Advantages of the Indirect Method

Longer-term view: The indirect method shows a long-term view of a business's cash flow, which is ideal for strategic planning. By starting with net income and adjusting for non-cash transactions, it offers insights into the broader financial impacts and sustainability. 

Understanding non-cash impacts: Incorporating non-cash transactions like depreciation and amortization provides deeper insights into your financial health. 

Accounts for future transactions: Using both historical financial data and non-cash adjustments gives you a better understanding of cash flow patterns and makes it easier to predict future financial transactions.

Disadvantages of the Indirect Method

Complex: Indirect cash flow forecasting is complex and often requires a deep analysis of financial statements, at challenge for those unfamiliar with intricate accounting methods.

Reliant on assumptions: The indirect method relies on estimates and assumptions, which can lead to inaccuracies if these assumptions do not hold.

Time-consuming: This method can be time-consuming, especially for startups or small businesses lacking comprehensive financial information or resources.

Not suitable urgent decision-making: It may not pinpoint short-term cash flow fluctuations accurately and can hinder rapid decision-making in pressing situations.

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When to Use Direct vs Indirect Forecasting

Startups and Small Businesses: Direct forecasting can be beneficial for startups and small businesses that need immediate visibility into their cash flow. Since these companies often deal with short-term cash needs and have simpler financial situations, the direct method gives a clear picture of their actual cash inflows and outflows.

Manufacturing Companies: For industries like manufacturing—which has complex operational requirements and large volumes of transactions— indirect forecasting is more useful. This method helps businesses understand long-term financial health by analyzing comprehensive financial statements and adjusting for inventory, payables, and receivables.

Retail Chains: Large retail chains with predictable sales patterns might lean towards indirect forecasting. The ability to leverage historical data for accruals makes it easier to project future cash flows based on past trends rather than current transactions.

Project-Based Businesses: Companies engaged in project-based work, such as construction or consulting, can combine both methods. By using direct forecasting for specific projects and indirect methods for overall financial stability, they can effectively manage short-term project cash flow needs and long-term financial planning.

Real Estate: Companies with multiple entities that heavily rely on cash, including real estate, hotels and other similar industries will combine a mix of both direct and indirect forecasting. Direct forecasting helps with day-to-day and operational decisions, while indirect forecasting informs long-term strategy and investment planning.

Other Factors to Consider When Choosing a Cash Flow Forecasting Method

Beyond industry or your business’s size, you can also choose a method based on the following factors:

‍Your goals: Is your focus short-term precision or long-term strategy? If you need granular cash flow insights for day-to-day cash management, direct forecasting might be more advantageous. If you need a long-term financial strategy, indirect forecasting provides a high-level perspective.

The data you have: What quality and quantity of historical financial data can you access? Direct cash flow forecasting relies on real-time cash transaction data, which isn’t always readily available. If you lack direct cash flow data, indirect forecasting based on financial statements can be a solid alternative.

‍Consider your resources: Note your available resources for data management and financial modeling capabilities. Direct forecasting can be data-intensive and may require sophisticated cash management systems. Indirect forecasting isn’t as resource-intensive and doesn’t require as much data mining.

Define timelines: Define the timeframes and list short-term and long-term goals. Direct forecasting provides short-term precision, while indirect forecasting can shed insights useful for strategic long-term planning.

Which is Better: The Direct or Indirect Method?

Understanding direct and indirect cash flow forecasting methods is crucial for effective financial planning. Each method has distinct advantages and challenges, tailored to different business objectives. 

For more precise, day-to-day cash management, direct forecasting offers clarity and immediate results. If your aim is comprehensive financial reporting and strategic planning, opt for the indirect method. 

When choosing which method best aligns with your company’s financial goals, consider the size of your business, the level of detail you require, and the resources at your disposal. Evaluating these factors will help create a cash flow management strategy you can feel confident with.

Panax’s flexible AI and Automation based Forecasting

Panax understands that companies with lean finance teams and complex treasury needs want flexible, accurate forecasting. AI-driven categorization within the Panax platform means forecasts are more accurate, and you can compare forecasts to actuals for increased accuracy and reporting. 

Within the Panax platform you can choose weekly or monthly forecasting options, and combine forecasting for scenario planning. Panax allows you to create forecasts that automatically roll week/week or month/month based on updated actuals - allowing you to focus on gaining insights instead and making decisions instead of on data entry.

To get a personalized demo of Panax’s forecasting capabilities, sign up here.

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Double-entry bookkeeping is an accounting system where every transaction is recorded in two accounts. When you buy a piece of equipment, your cash decreases, but your assets increase. This dual-entry system ensures that the accounting equation stays balanced and shows a comprehensive picture of a company's financial position.

Double-entry bookkeeping overcomes the limitations of single-entry bookkeeping by maintaining the balance in accounts while allowing for quick identification of discrepancies.

This system is the accounting standard for businesses worldwide due to the level of detail and accuracy it provides into financials. ‍

Core Principles of the Double-Entry System

The core principle of the double-entry bookkeeping system is the dual-entry concept (recording transactions in two accounts) and the accounting equation: Assets = Liabilities + Equity 

Essentially, that means every account entry  has a corresponding and opposite entry to a different account to ensure the books stay balanced. For instance, earning revenue would increase an asset account and increase equity. A loss on a transaction would see equivalent shifts, maintaining the balance.

Understanding this is key because it forms the backbone of the double-entry system. Assets—what a company owns—must always equate to the sources of those assets as liabilities (debts) or equity (ownership).

These principles help firms maintain accurate financial records. With every transaction having two sides, it guarantees teams can flag and correct financial errors. Finally, the principles give stakeholders precise, accurate information while ensuring compliance with accounting standards. 

How Double-Entry Bookkeeping Works

The double-entry bookkeeping process is straightforward. Here’s an example: A company buys office equipment for $2,000 using cash. This transaction impacts two accounts; On one side, the equipment or asset account increases by $2,000. At the same time, the cash account (another asset) decreases by the same amount. Recording both sides of the transaction keeps the accounting equation intact.

To practice this method, start by identifying the affected accounts, their type (asset, liability, equity), and whether the account balance increases or decreases. Then make the appropriate debit and credit entries. Remember that each transaction must have an equivalent debit and credit—a foundational rule of double-entry bookkeeping.

Common account types in double-entry systems include assets, liabilities, equity, revenues, and expenses. Each has its own role to accurately depict the company’s financial picture. While assets and liabilities describe the balance sheet, revenues and expenses provide insight into the operational efficiency of a business. Combining these with equity gives a complete financial snapshot. 

Benefits of Double-Entry Bookkeeping

Knowing and understanding the benefits of doubly-entry bookkeeping enables organizations to tap into its full power. Here’s a list of benefits:

Saves time and resources

Marking transactions with two entries reduces the risk of error. If the accounting equation doesn't balance, teams can identify anomalies right away, saving time down the road. 

Detailed financial analysis

Another advantage to this system is that businesses can easily derive detailed income statements, balance sheets, and other financial reports. This depth of reporting offers stakeholders a detailed insight into operational performance, debt levels, and profitability.

Double-entry bookkeeping provides a narrative for each financial transaction, offering detailed insights into where the business stands, allowing for future forecasting and strategy formation.

Ensures legal compliance‍

This method maintains compliance with legal responsibilities and auditing requirements, enabling teams to meet financial reporting rules, such as keeping records with clear trails for every transaction.

Improve investor confidence
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With detailed, accurate records of all transactions, investor confidence grows. Reliable financial statements also promote credibility and maintain trust between team leaders and stakeholders.

Comparison to Single-Entry Bookkeeping

Understanding the merits of double-entry bookkeeping becomes clearer when compared to single-entry bookkeeping. Single-entry records track only cash inflow and outflow, unlike the double-sided effect seen in its counterpart. With single-entry booking each transaction affects only one account, resulting in one entry. It also focuses on income and expenses, usually disregarding equity, assets, and liabilities. Here’s a chart for comparison:

A 12-month cash flow forecast is a financial tool businesses use to project their cash inflows and outflows over the course of a year (ie,how high its income and expenses during the year).This forecast helps companies anticipate future cash movements, reduce financial risks and create financial long term financial plans. 

For example, a 12-month rolling forecast could be January through December 2025. When January 2026’s results are finalized, you could replace it with January 2027. The forecast encompasses 12 months, but slides forward every month.

Why is a 12-month cash forecast important for businesses?

While shorter time frames such as a 13-week cash flow forecast or monthly updates provide valuable short term insights, a 12-month cash flow forecast provides a comprehensive view that can bolster long-term strategic planning. A 12-month forecast leaves room for seasonal fluctuations in cash inflows and outflows. Understanding these patterns allows you to strategically allocate resources, prepare for potential downswings, and capitalize on peak periods.

A year-long forecast also provides the extended visibility needed for informed capital expenditure planning and investment decisions. It gives your business the foresight to align funding strategies with projected cash availability, supporting sustainable growth and expansion.  Over a 12-month horizon, companies can predict and mitigate cash shortages, enabling operational agility and financial stability. This is especially important for companies looking at longer term, large financial events, such as mergers, acquisitions or raising capital.

A 12-month cash flow forecast provides a comprehensive view that can bolster long-term strategic planning

How does a 12-month cash flow forecast work?

Creating a 12-month cash flow forecast is actually pretty simple; Businesses must compare the expected income with the expected expenditure for each month. Then, they’ll subtract the expenses from the income, showing whether the expenses exceeds the income or if the month ended in a surplus or deficit.

In order to make those calculations, you must gather historical data (e.g. all revenue and expenses). To make these types of forecasts more accurate, companies may pull their ERP data from the last year.

Revenue might include:

• Customer payments
• Cash sales
• Subsidies and other funding
• Tax refunds 
• Income from financial investments
• Income from licenses or patents 

Expenditures might include:

• Employee salaries
• Rent for office spaces, warehouses, and/or production halls
• Supplier payments
• Software license fees 
• Operating costs such as water, electricity, internet, and so on
• Insurances 
• Marketing costs

Typically 12-month forecasts—which include rolling updates— segment revenue and expenses into three primary components: operating activities, investing activities, and financing activities.

Operating Activities

• Revenues: Sales revenue, service income, accounts receivable collections
• Expenses: Salaries and wages, rent, utility bills, supplies, and accounts payable disbursements

Investing Activities

• Revenues: Sale of fixed assets, dividends from investments
• Expenses: Purchase of equipment, investment in securities, capital expenditures

Financing Activities

• Revenues: Proceeds from loans, issuance of shares or bonds
• Expenses: Loan repayments, dividend payments, share buybacks

All three components show businesses where cash originates from and how it is utilized. A rolling 12-month forecast gives a  continuous and forward-looking view of their cash dynamics, a vital part of strategic planning and financial stability.

Three tips for creating a 12 month forecast

1. Remember the company’s mission: Rolling forecasts tend to be more successful when it’s aligned to the company’s objectives and goals.
2. Invest in the right tools: spreadsheets passed from department to department could lead to disjointed and error-prone documentation. Consider a flexible forecasting software that will increase accuracy and save resources.
3. Adjust forecasts as necessary: Revisit the forecast and compare it to actual results so you can make adjustments.

How often should a cash flow forecast be updated?

Regularly updating cash flow forecasts is crucial for effective financial management. Ideally, businesses should update cash flow forecasts monthly, or even weekly to reflect the most up-to-date financial data and to accommodate any changes in market conditions or business operations. 

To control liquidity and accurately forecast, especially in uncertain economic periods, companies may even want to create several versions of their forecast. This means that they are able to compare scenarios, and accurately run scenario planning. 

This practice helps identify potential liquidity issues early so businesses can proactively  make informed financial decisions. Regular forecast updates not only track business performance, but also ensure that strategic plans align with current financial realities.

For example, if businesses see unplanned or unexplained discrepancies between forecasted and actual cash flows, they can correct them to maintain accuracy.

An Easier Way to Build 12-Month Forecasts

A 12-month cash flow forecast provides critical insight into a business’s financial health during a significant period of time, which provides enough data to better prepare for uncertainties and exercise  strategic decision-making.

Though Excel can create 12-month forecasts, the process is very manual, time-consuming and prone to human errors. Excel also doesn’t make it easy for teams to collaborate, to grant permissions to different people in different teams, or to easily share reporting. 

Panax offers an AI-driven cash management platform for lean finance teams with complex treasury needs. Panax's automation and AI makes categorizing transactions easier and quicker, and creates fuller data for forecasting. Panax offers weekly, monthly and long term forecasts based on ERP data and AI algorithms, offering flexibility to pull the relevant data into your forecast, and update it with ease. All together it makes it easy to forecast for your company, so you can optimize liquidity and work more efficiently.

Want to learn more about how Panax’s flexible forecasting can help you and your team work better? Get a demo today‍

A Cash Flow Statement (CFS) is an important financial document for any business. It summarizes how money moves in and out over a specific accounting period. Unlike other financial statements, it doesn’t just track profits or losses but provides a real-time snapshot of liquidity—the funds a company has available. By highlighting the sources and cash usages, this statement is indispensable when understanding a company's operational efficiency and financial solvency.

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Why a Cash Flow Statement is Important

Tracking a company's inflows and outflows of cash is crucial for several reasons:

1. It provides spending details: A CFS allows businesses to understand their actual financial position by categorizing where the money is coming from (eg operating activities, investing activities, or financing activities) and where it’s going. 

2. It helps with short-term planning: By following the trail of cash, businesses can better forecast future cash flows and create more suitable strategies for debt repayment, capital investments, or dividend distributions. 

3. It maintains optimum cash balance: It is important for the company toknow if too much cash is underutilized or if there’s a shortage of funds. If the business has excess cash they can use it to invest in shares or buy inventory. If there is a funds shortage, the company can look for areas to borrow funds to keep the business operating.

4. Companies can focus on generating cash: There are several ways to generate cash aside from profit. For example, when a company finds a way to save on equipment, it generates cash. Every time it collects receivables from its customers ahead of schedule, it is gaining cash.

Ultimately, a cash flow statement is both a historical and predictive tool that enhances financial planning and ensures the company has enough liquidity to meet its obligations and continue on the path of sustainable growth.

Breaking Down the Components: Operating, Investing, and Financing Activities

Let's dive deeper into the cash flow statement’s three core parts: operating activities, investing activities, and financing activities.

Operating Activities

This section shows the cash earned from the company’s daily business operations, showing the firm’s profitability. You’ll likely see cash receipts from sales of goods and services, cash payments to suppliers, and cash paid to employees. In essence, operating activities show how efficiently the company can turn its goods and services into cash.
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Investing Activities

Investing activities outline the cash used related to the company’s investments. This typically includes transactions related to the purchase or sale of long-term assets and other business investments. For example, if a company buys real estate, equipment, or patents, these transactions are reflected here.

Proceeds from sales also fall under investing activities. This section shows how a company allocates funds towards its growth and expansion efforts, focused on capital expenditures.
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Financing Activities

Financing activities on a cash flow statement detail how the company funds its operations and growth through various external sources, such as transactions with the company's owners and creditors, cash inflows from raising capital (issuing stocks or taking out loans), and cash outflows for repaying borrowed funds or distributing dividends. 

The financing activities section helps you understand the financial strategies a business employs to sustain and expand its operations.

How to Read A Cash Flow Statement 

 One of the biggest benefits of preparing a cash flow statement is that it allows you to understand current amount of cash and/or the increase or decrease in cash over a certain time period. Here’s what this can look like:

1. Cash at beginning of period: The amount of cash your company has at the start of the fiscal period. This equals the ending cash balance from the previous fiscal period.
2. Cash at end of period: The amount of cash your company has at the end of the current fiscal period.
3. Change in cash: The amount your company's cash balance increases or decreases during an accounting period. To determine this, calculate the difference in cash from your previous period to the current one.

What Can A Cash Flow Statement Tell You?

A cash flow statement can answer the following questions regarding your cash movements:

• When is there a cash flow surplus?
• What do you do with excess cash when you have it?
• When do you have a cash flow shortfall?
• What happens during a shortfall?
• How are current growth plans performing?
• What happens if another pandemic or disaster were to occur? 
• Would your business be able to handle that? For how long? How much of a drop in revenue can you handle? 

How to Prepare a Cash Flow Statement: A Step-by-Step Guide

Creating a cash flow statement may seem daunting at first, but breaking it down into manageable steps can simplify the process. Here's a step-by-step guide to preparing an effective cash flow statement for your business:

1. Gather Financial Statements

To create a cash flow statement you'll need the current and previous periods’ balance sheets, income statements, and retained earnings reports. These documents provide you with a historical snapshot of your financial activities.

Once you've gathered these financial statements look for trends such as regular expenses, steady income, and investments that will influence your cash flow statement. These documents serve as the foundation of your analysis, capturing the financial movements that ultimately flow into your CFS.

2. Determine Reporting Period

Establish whether the cash flow statement will cover a month, a quarter, or a year. These dates will depend on regulatory requirements.

Ensure you remain consistent in reporting periods across all financial statements to maintain accuracy and comparability with previous periods.

3. Choose a Method (Direct vs Indirect)

Decide whether to use the direct or indirect method to prepare the CFS
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Direct Method vs Indirect Method

The direct method is straightforward. It involves listing all cash collections and disbursements during the period, giving you a clear view of actual cash inflow and outflow from operations. This also makes it easy for stakeholders to understand inflow and outflow. The direct method can be quite time-consuming because it requires detailed records of all cash transactions.

Pros of the Direct Method:

• Provides a clear picture of cash flow from operations
• Helps improve cash management and planning

Cons of the Direct Method:

• Time-consuming to prepare due to detailed data requirements
• Less commonly used, may not align with standard internal reporting

The indirect method starts with the net income and makes adjustments for non-cash transactions, changes in working capital, and other items. This method is more popular because it's less complex to prepare; companies often have the data readily available through their financial statements. Yet, it may be less intuitive for someone trying to track exact cash movements.

Pros of the Indirect Method:

• Easier to prepare and widely used
• Less detailed data requirements
• Compatible with other financial statements, as it starts with net income

Cons of the Indirect Method:

• Doesn't show actual cash flows from operating activities as clearly
• Can be more complicated for readers to comprehend cash inflows and outflows

Cash Flow Statement Example

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Excel Resources for Cash Flow Statement Preparation

• Template.net - Cash Flow Statement Templates
• ‍Vertex42 - Cash Flow Statement
• Xero - Cash Flow Statement Template

Advanced Issues with Cash Flow Statement Preparation

Interest Payments

‍When preparing a cash flow statement, knowing how to classify interest payments or expenses is vital. These can be categorized under operating activities or financing activities, depending on the accounting standards or policies the business adopts.

Under operating activities: In many systems, like the US GAAP, interest paid is included in the operating activities section of the cash flow statement. This categorization is based on the notion that interest payments are a regular business expense.

Under financing activities: Alternatively, the International Financial Reporting Standards (IFRS) give entities the choice to classify interest payments as either operating or financing activities. When classified under financing activities, interest payments reflect the cost of obtaining financial resources.

Ultimately, the classification of interest payments can have a significant impact on the company’s cash flow analysis, influencing perceived liquidity and financial strategies. It is essential to be consistent with the classification to ensure clarity and comparability in financial reporting.

Depreciation:

‍Depreciation may appear as a non-cash expense in _the cash flow statement, particularly when using the indirect method. Located in the operating activities section, depreciation adjustments help reconcile net income to net cash flow from operating activities.

Within the cash flow statement, depreciation appears as an addition to net income when using the indirect method. This occurs because depreciation expenses reduce net income but do not involve actual outflows of cash.

How it affects the cash flow statement: Depreciation increases the net cash from operating activities. Since depreciation is a non-cash item, it's added back to the net income to reflect the true cash flow, counteracting the reduction in net income caused by depreciation.
This adjustment ensures users of the statement see a clear picture of cash generated from operations, separate from book expenses like depreciation.

Dividends

Dividends are a form of profit distribution to shareholders that appear under the financing activities section of the CFS. This classification is essential as it reflects a company's strategy in returning value to its investors.

Dividends impact the overall cash position of the business. By including dividends in the financing section, the CFS provides insights into how a company manages its financial obligations and shareholder relations.

• Cash Outflows: Dividends represent a business’s cash outflows . When a company decides to pay dividends, this amount reduces the available cash within the company, impacting its financing activities.
• Financial health indicator: Regular dividend payments indicate financial stability and a company's confidence in its ongoing cash flow generation. A halt or reduction in dividend payments might raise concerns about the company's cash reserves or profitability.
• Regulatory differences: It's also important to note that under generally accepted accounting principles (GAAP), paid dividends are included under financing activities. However, under International Financial Reporting Standards (IFRS), dividends may sometimes be reported within operating activities, depending on the company's accounting policies and practices.

Understanding the placement and impact of dividends on the cash flow statement is crucial because it provides valuable insights into a company's financial strategies and priorities concerning shareholder distributions.

Cash Flow Statement vs Income Statement vs Balance Statement

Understanding the distinctions between the cash flow statement, income statement, and balance sheet is important for comprehensive financial analysis. Though distinct, they all contribute to  a company's financial health portrayal.

Cash flow statement: This statement highlights the inflow and outflow of cash within a business, demonstrating its ability to manage cash efficiently for operations, investments, and financing. By focusing exclusively on cash movements, it helps assess liquidity and cash management practices.

Income statement: Also known as the profit and loss statement, this provides a summary of revenue, expenses, and profits over a specific period. It operates on an accrual basis, depicting the profitability and operational performance. Income  statements may not always reflect current cash conditions.

Balance sheet: This offers a snapshot of a company’s financial position at a particular point in time. It displays assets, liabilities, and shareholders' equity, illustrating what the company owns and owes, along with the invested capital. This allows businesses to analyze the company's net worth and financial structure.

These statements complement each other by providing a full view of the company's financial picture. The income statement shows profitability, which impacts the cash flow statement as it affects cash from operations. The balance sheet, however, records assets and liabilities directly connected to cash flow activities, such as changes in inventory or receivables.

Together, they paint a detailed picture of performance, financial position, and liquidity analysis. This triangulated approach is essential for assessing profitability, financial stability, and growth potential.

Cash flow forecasting is the process of estimating the business’s future cash levels over a specific period of time. This financial management tool helps businesses anticipate cash shortages or surpluses, allowing them to make informed operational and strategic decisions.

By accurately predicting future cash levels, companies can ensure they have enough liquidity to meet their financial obligations, invest in growth opportunities, and avoid unnecessary borrowing costs.

Cash flow forecasting is a crucial financial tool that helps businesses predict their future financial position. By anticipating the inflow and outflow of cash, companies can better understand their future cash positions, enabling them to make informed strategic decisions. This forecasting ensures that funds are available to cover obligations as they arise, thereby maintaining liquidity and avoiding potential cash shortages.

Essentially, cash flow forecasting provides a roadmap for financial planning, enhancing a company's ability to navigate future financial landscapes with confidence.

Cash Flow Forecasting vs Budgeting

A cash flow forecast predicts when income and expense charges come in and out of the bank account. A budget helps plan resources and capital for a project or business objective.

Budgeting provides a detailed financial roadmap, outlining projected revenues, costs, and resources. In contrast, cash flow forecasting zeroes in on when exactly these financial movements will occur.

Though different in focus, cash flow forecasting and budgeting are complementary. Budgets set financial targets and allocation plans that cash flow forecasts monitor in real-time. By integrating both, businesses ensure they are not only planning their finances meticulously but also dynamically adapting to cash movements. This combination helps balance long-term goals with current financial health, for accurate financial decision-making and skilled strategic planning.

Real-World Example of a Cash Flow Forecast

ABC Inc. is a  small hardware store. ABC Inc. wants to estimate the cash coming in and going out for September to ensure they can cover all their expenses and plan for any unexpected costs.

They’ll start by listing their expected cash inflows. This includes:

1. Sales revenue: $25,000
2. Customer payments on outstanding invoices: $7,000
3. Investment income: $1,000

The total of the above figures gives ABC Inc. a total projected inflow of $33,000 for September.

Next, they list their expected cash outflows, such as:

1. Supplier payments: $10,000
2. Employee salaries: $8,000
3. Utility bills: $1,500
4. Rent: $3,000

Miscellaneous expenses: $1,000

The total projected outflow amounts to $23,500.

By comparing the inflows and outflows, ABC Inc. calculates a net cash flow of $9,500 for September, meaning the business will have a surplus, leaving room for investment or savings for unforeseen expenses.

ABC Inc. will continuously update their forecast as data comes in, allowing them to adjust their spending and prediction models to maintain healthy liquidity. This proactive approach helps them to smoothly navigate through financial uncertainties.

How to Create a Cash Flow Forecast

Creating a cash flow forecast involves several key steps:

1. Determine your forecasting objective
2. Choose forecasting period (short term e.g. 13 weeks or long term e.g. 12 months forecast)
3. Choose forecasting method (direct or indirect)
4. Source your financial data

See this article for a more detailed guide on how to build a cash flow forecast

Why is Cash Flow Forecasting Important

Cash flow forecasting offers several key benefits that drive business success. Here’s a list of reasons why this tool is important.

Improved financial planning

By accurately predicting future cash inflows and outflows, you can ensure that your business remains solvent and can cover its obligations. Financial planning enables precise budgeting and resource allocation to areas that promise the highest returns.

Risk management

With a clear picture of your cash flow, you can identify potential shortfalls well in advance. This proactive approach allows you to address issues before they become critical, whether by securing additional funding or strategically adjusting expenditures.

Better decision making

Equipped with detailed financial projections, you can make informed decisions such as when to expand, invest in new projects, or reduce costs. This not only supports growth but enhances your ability to respond quickly to changing market conditions.

Cash flow forecasting is a crucial tool that allows businesses to proactively manage their financial health. Whether it's allocating funds for new investments, paying down debt, or simply ensuring that all bills are paid on time, cash flow forecasting provides the clarity needed to make informed financial decisions.

Difference Between Cash Management, Cash Forecasting & Liquidity management

While interrelated, each financial tool has a distinct role in managing a company's cash and overall financial health. Let's break down the differences:

Cash management: This refers to the broad process of collecting, managing, and investing a company's cash and cash equivalents. The primary goal of cash management is to optimize liquidity, ensuring that the company has enough funds to meet its short-term obligations, while maximizing returns on any idle funds. Put simply,, cash management is about making the most efficient use of cash on hand.

Cash flow forecasting: Unlike cash management, which focuses on current cash, cash flow forecasting is future-based. It predicts the timing and amounts of future cash inflows and outflows based on historical data, market conditions, and business activities. Accurate cash flow forecasting is crucial for strategic planning and helps businesses anticipate funding needs, avoid liquidity shortfalls, and make informed decisions about investments and expenditures.

Liquidity management: This is the practice of ensuring a company can meet its short-term obligations and continue operations without financial stress. It encompasses both cash management and cash flow forecasting, but also includes managing other liquid assets that can quickly convert to cash. Effective liquidity management ensures that a business maintains sufficient cash reserves or access to capital to handle unexpected expenses or opportunities.

By understanding and utilizing these three financial strategies, businesses can maintain a robust financial standing, ensuring they are well-prepared for both current needs and future challenges.

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When it comes to running a business, forecasting cash flow is an essential practice. Cash flow forecasting involves predicting the amount of money that will flow in and out of your business over a specific period. By mastering cash flow forecasting, you can better predict future cash positions, avoid potential shortages, and effectively utilize surpluses, ensuring smooth financial operations for your business. This allows you to anticipate any potential shortfalls and plan accordingly. 

In this article, you’ll learn steps and practical tips for forecasting cash flow accurately using Excel. Let’s dive in.

The importance of managing cash flow

Understanding and managing cash flow is crucial  for several reasons, as it:

‍Ensures Liquidity: A cash flow forecast helps ensure you have enough cash on hand to meet your obligations like payroll, supplier payments, and other operational expenses.

Supports Decision Making: Accurate forecasting allows you to make strategic decisions about investments, expansions, or cost-cutting measures.

Avoids Surprises: By predicting cash flow, you can avoid unexpected shortfalls that could harm your business operations.

Builds Confidence: Providing clear cash flow projections can build confidence among investors and lenders, demonstrating that your business is well-managed and sustainable.

A good cash flow forecast acts like a financial weather report for your business, helping you prepare for sunny days and navigate through storms

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Step-by-Step Guide to Creating a Cash Flow Forecast

Creating a cash flow forecast might seem daunting, but breaking it down into manageable steps makes it easier to handle. To help you get started, we've outlined a simple, step-by-step guide to forecast your cash flow. 

1. Determine the Forecasting Period

‍Decide whether you want a weekly, monthly, 13 week or 1 year forecast. A shorter period (e.g. weekly) provides more precision for immediate decisions, while longer periods (e.g. quarterly) are better for strategic planning.

2. Choose Between Direct and Indirect Methods‍

For short-term accuracy, use direct forecasting by tracking cash receipts and payments. For longer-term, strategic forecasting, use the indirect method, which leverages financial statements like income statements and balance sheets.

3. Forecast Your Income or Sales 

‍Begin by deciding which period you want to cover, whether it's weekly, monthly, or quarterly. Look at past sales data to identify trends and make educated guesses about future sales. For new businesses, estimate your sales based on market research and potential customer base. 

4. Estimate Cash Inflows 

Consider other potential sources of cash inflows beyond sales. This includes loans, asset sales, GST rebates, or additional investments from owners. Adding these to your forecast provides a complete picture of incoming cash. 

5. Estimate Cash Outflows and Expenses

List all expected cash outflows, such as the costs required to make goods available, operational expenses, salaries, rent, utilities, and any other regular business expenses. Don't forget to include irregular expenses, like annual subscriptions or one-off purchases. 

Subtract the net outgoings from the net income for each period to determine your cash flow, which can be either positive or negative.

6. Create a Running Total

Next, you'll want to maintain a running total over time. This involves keeping a cumulative account of your cash flow. Essentially, at the end of each period, you will add or subtract your net cash flow from the previous period’s closing balance. 

How to Create a Cash Forecast with Excel

Excel is a powerful tool for creating cash flow forecasts, thanks to its versatile functionalities. Here are some key functions and features that will help you build an accurate, effective cash flow forecast: 

SUM Function: Use this to aggregate your cash inflows and outflows, providing a quick total for specific periods.

IF Function: This helps create conditional scenarios. For example, if a certain condition is met, a specific outcome is displayed.
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VLOOKUP/HLOOKUP: These functions are useful for retrieving data from different tables or sheets, allowing for dynamic references and more streamlined calculations.
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CHARTS: Visual representations such as bar charts or line graphs can help you identify trends in your cash flow over time, leading to better decision-making.
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DATE : Functions like EDATE and EOMONTH are useful for handling date-specific calculations, increasing timing accuracy in your forecasts.
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DATA VALIDATION: Use this feature to restrict the type of data or values you can enter in a cell, ensuring that your cash flow model remains consistent and error-free.
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PIVOT TABLES: Simplify large datasets by summarizing your cash flow data, making it easier to analyze and interpret your financial information.
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CONDITIONAL FORMATTING: Highlight specific cells based on conditions (such as cash inflow less than a threshold), making it easy to identify potential issues.
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GOAL SEEK: This feature can help you determine the necessary input values to achieve a specific financial goal, such as a targeted ending cash balance.

By leveraging these Excel functions and features, you can create a comprehensive and reliable cash flow forecast tailored to your business needs.

Limitations of Using Excel in Cash Forecasting

Although many businesses use Excel in their cash management because of its accessibility and flexibility, it presents a number of limitations, including: 
‍
‍Manual Data Entry that’s prone to human error: Entering data manually into Excel is not only time-consuming but also prone to human error. This can compromise the accuracy of your cash flow forecasts.

‍Lack of Automation: Excel lacks built-in automation features, making it difficult to update and sync your data efficiently without extensive manual effort.

‍Difficulty scaling as the business grows: As your business grows, managing larger datasets and complex financial models in Excel becomes increasingly cumbersome, hindering scalability.

‍Limited Reporting: Creating customized and dynamic reports in Excel can be challenging, often requiring advanced knowledge of formulas and pivot tables.

‍No Real-Time Collaboration: Excel does not facilitate real-time collaboration, making it hard for multiple team members to work on the same cash flow forecast simultaneously.
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‍‍5 Tips to Improve Your Cash Flow Forecasting

Accurate cash flow forecasting isn’t just about crunching numbers. It’s about understanding the ebbs and flows of your business and utilizing key strategies to anticipate future financial needs. Here are five essential tips that can enhance your cash flow forecasting: 
‍
Regularly Update Your Forecast

Cash flow forecast is not a set-it-and-forget-it document. Revisit and revise your forecast frequently to reflect any changes in income, expenses, or external economic factors. The more current your forecast, the more reliable your financial planning will be.

Use Historical Data Wisely

Employ past financial data to identify trends and patterns in your cash flow. This historical perspective can inform more accurate projections. However, remember that past performance isn’t always indicative of future results, so consider any anticipated changes in market conditions, seasonal fluctuations, and business growth.
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Incorporate Multiple Scenarios

Plan for the best, worst, and most likely financial scenarios. This approach helps you prepare for unexpected changes and develop contingency plans. By modeling different outcomes, you can better navigate through uncertainties.
‍
Monitor Key Metrics

Keep an eye on critical financial metrics like accounts receivable turnover, inventory turnover, and accounts payable days. These metrics can offer insights into your cash flow health and highlight areas where you might need to adjust your strategy.
‍
Communicate with Stakeholders

Effective cash flow management like cash flow monitoring often involves multiple departments and stakeholders. Maintain open communication with your finance team, suppliers, and customers. Their input can provide valuable insights and help you make more informed decisions.

Improving your cash flow forecasting is an ongoing process that requires diligence and adaptability. By following these tips, you can create a more accurate and responsive forecast, ensuring your business stays financially healthy and prepared for the future.

Done Right, A Cash Forecast Can Be One of Your Most Impactful Tools

Mastering the art of cash flow forecasting is crucial for every business, regardless of its size or industry. Ultimately, a well-prepared cash flow forecast is not just a chart filled with numbers—it's a strategic system that empowers you to navigate the financial future of your business confidently.

While Excel is a powerful tool, it has its limitations, especially when it comes to managing and updating extensive cash flow data. This is where cloud-based solutions with real-time, cash account updates come in. These solutions provide more dynamic, user-friendly, and automated features to enhance your forecasting accuracy and efficiency. 

With Panax, you can revolutionize your cash flow forecasting by leveraging powerful features such as: 

Real-time Updates: Unlike static Excel sheets, Panax offers real-time data synchronization, ensuring your forecasts are always up-to-date.
Automation: Automate repetitive tasks and reduce manual errors with intelligent automation features, saving you valuable time.
Advanced Analytics: Gain deeper insights into your cash position with powerful analytics and visual dashboards that Excel simply can't match.
Scenario Planning: Easily create and compare multiple scenarios to prepare your business for various financial situations.
Accessibility: Access your cash flow forecasts from anywhere, anytime, with cloud-based storage and security.

By incorporating Panax into your financial toolkit, you're not just overcoming Excel's limitations; you're setting a new standard for your business's financial health, ensuring you're always a step ahead in your cash flow management.
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Contact us today to see how Panax can take your cash fore forecasting forward.

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AFP 2024 is one of the biggest finance and treasury conferences of the year. This year it takes place in Nashville, making it even more exciting for participants looking to learn, but also enjoy everything the city has to offer. Here’s our take on what not to miss at AFP Nashville 2024. 

1. From Automation to Intelligence: A DIY Adventure in RPA, Sunday 1-2pm, Financial Planning & Analysis

Speakers: 

• Michelle Crowell, Director of Finance, Nextep, Inc.
• Nikita Miller, FPAC, Director of Facilities and Financial Planning & Analysis, The Kresge Foundation

Session description: Systematic data collection, transformation and analysis are at the root of the success of Treasury and FP&A. While many technologies provide automation and standard reporting, most professionals are presented with gaps in technology that must be addressed.

This session spotlights how one pioneering team successfully eradicated the need for extensive staffing by leveraging cutting-edge robotic process automation (RPA) and data transformation technologies, leading to a profound improvement in accuracy, timeliness, and the seamless distribution of business-critical information. Break free from the shackles of repetitive daily tasks, fostering a future where efficiency, precision, and scalability go hand in hand.

2. Modernizing Customer Collections and Payments, Sunday 2:30-3:30pm, Payments

Speakers: 

• Katie Chew, Managing Director, Treasury Operations, United Airlines
• Frank Pertusiello, Director, Solution Sales, Citi
• Kammy Tsang, Senior Director, Treasury, Ripple

Session description: Traditional collection and payment methods have long been plagued by high costs, inefficiencies, manual processes, and delayed settlement. As consumers become more tech-savvy, companies must adapt. In the airline industry, digital payments have transformed ticket purchases and refunds, with passengers seeking a streamlined, real-time, and flexible digital experience.

These innovations in the airline industry also apply to other consumer-facing sectors, driving similar benefits that reduces costs, streamlines operations, improves working capital, and maximizes growth. Join this session to explore these transformative innovations and their broader applications.

3. Revenge of the Tipping Point Sunday 4:30-6:00pm, Keynote

‍Speaker:

• Malcolm Gladwell 

Session description: In his latest book, New York Times bestselling author Malcolm Gladwell, revisits the phenomenon of social epidemics and examines the ways in which we have learned to tinker with and shape the spread of ideas and trends—sometimes with great success, sometimes with disastrous consequences. Today’s epidemics are turbocharged versions of their earlier counterparts, and we are more tempted than ever to try to manipulate tipping points for our own ends.

Treasury and finance professionals need to apply the concept of the tipping point – how small changes can make a big impact - to influence their organization’s success or even the world for the better. In this thought-provoking keynote, Gladwell shares the insights needed 

4. Finding Your TMS Soulmate: Swipe Right on Success, Monday 8:30am-9:30am, Treasury Management

Session description: In relationships, you don’t need to find someone who is perfect — you need to find someone who is perfect for you. The same can be said when selecting a TMS. While there is no one perfect TMS, there is one (or more) that is right for you. But how do you know which one to swipe right on?

In this session, two experts in the industry teach attendees how to successfully choose a TMS, covering selection, implementation, and usage, and including an exploration of the practical and realistic applications of the latest technologies (e.g., AI, ML, API), emerging products in the TMS space, and what you should do now.

Speakers:

• Staci Holt, CTP, Sr. Manager, Treasury Operations, Pilot Company
• Tracey Knight, Principal Consultant, SaaS-Y Business Consulting
• Danecia Stewart, Director, Treasury, NextDecade

5. Demystifying Cash Flow Forecasting, Monday 10:30-11:30am, Capital Markets & Investments

Session description: Having a robust cash flow forecast is critical for the financial health of a business both from a day to day operational and long-term strategic perspective. It provides valuable insights that enables companies to make more informed decisions, have better liquidity & working capital management, and instill investor confidence.

Discover how Salesforce’s Treasury team harnesses real-time data to gain visibility into cash and forecast future cash flows. By leveraging industry-leading technologies, they streamline and automate tedious tasks of data extraction and manipulation, and free up time for value-added analysis.

Speakers:

• Brian Krafcheck, Sr Director, Treasury, Salesforce
• Priscilla Yip, Sr. Manager, Treasury, Salesforce
• Timothy Lee, Treasury Manager, Salesforce

6. From Strategy to Execution: Best Practices for Corporate Investments, Monday 1:45-2:45pm, Capital Markets & Investments

Session description: Treasury and financial professionals play a crucial role in managing a company’s financial resources. Understanding how to best deploy excess cash, write an impactful investment policy, and invest strategically are all essential components of their responsibilities. Given the current market volatility and the uncertainty of future economic conditions, treasury professionals must be able to identify and act on opportunities as they arise.

This session explores the essential controls for managing a robust investment program, from investment selection and daily operational management, compliance controls and key performance metrics. Attendees gain valuable insights to elevate their organization’s cash management and investment strategy to the next level.

Speakers:

• Bridget Rodnick, Assistant Treasurer, BioMarin Pharmaceuticals, Inc.
• Jessica Siu, Senior Manager, Treasury, Dropbox, Inc.
• Sara Flour, CTP, Managing Director, RBC Global Asset Management

7. Request for Payments (RFP) a Year Later, Tuesday 8:30-9:30am, Payments

Session description: The U.S. receivables and payments landscape are undergoing a significant transformation, largely driven by the advent and adoption of Request for Payment (RfP) solutions facilitated by instant payment networks such as the RTP® Network and FedNow. These solutions promise to redefine bill payment and Point of Sale (POS) experiences for businesses and consumers alike.

This session not only reflects on the year’s advancements but also charts the course for future developments in RfP solutions and provides attendees with actionable insights for optimized financial operations and customer engagement.

Speakers:

• Joshua Karoly, Director, Payments, Netflix
• Cheryl Gurz, Vice President, RTP Product Management, The Clearing House
• Dean Nolan, Managing Director, Commercial Payments, Strategic Resource Management (SRM), Inc.
• Mike Thomas, SVP Head of Instant Payments, US Bank

8. Masterclass in Change Management for Finance Leaders Adopting Automation & AI, Tuesday 10:30-11:30am, Financial Planning & Analysis

Session description: Technology is changing the world faster than ever. While much has been said about the technical aspects, we must also consider the human element. Maximizing the impact of automation and AI on your finance organization requires changing how people approach their work, not just upgrading the systems that support them.

This interactive discussion explores practical strategies for building awareness and positive engagement across the organization and overcoming barriers to change while creating a culture of feedback and accountability. Attendees learn how to measure and communicate the value of automation and AI to their leadership team to successfully build buy-in for further investment in the finance function.

Speakers: 

• Derek Milioni, VP of Finance Transformation, Bakerfield Solutions
• Cassie Wang, SVP, Head of Finance, Lightship Security, Inc.
• Mariya Guttoh, FPAC, Director of FP&A & Treasury, PayJoy

9. Implementing a Treasury Policy in a Newly-Created Treasury Department, Tuesday 2:00-3:00pm, Treasury Management

Session description: In a time of market unpredictability, companies and stakeholders are prioritizing Risk Management. More important than its size, a robust treasury policy is essential for identifying, assessing, and mitigating risks, managing cash flow, and navigating business volatility, including changes in interest rates.

Teranet addressed these challenges by establishing a dedicated treasury department and creating a new, tailored treasury policy that governs its operations. This session stresses the importance of an effective treasury policy that strikes a balance—being concise, yet comprehensive - that encompasses all treasury functions, promotes accountability and is regularly reviewed at the highest levels.

Speaker: 

• John Garofano, CTP(CD), Senior Director, Treasurer, Teranet

10. Virtual/Hybrid Teams: Virtual Meeting Mastery, Wednesday 10:00-11:00am, Principles in Practice

Session description: In this workshop, attendees learn how to master virtual meetings using a specific framework that is rooted in proven best practices. It begins with learning how to start with the end in mind by having a follow up system in place before you go into a meeting. Next, attendees discover how to organize and plan their meetings using a framework to ensure everything runs smoothly.

Discussion includes tactics for effectively running meetings by staying on track and managing participation using tools and tips to guide question asking and listening.

Speaker:

• John Sanchez, Managing Director, The FPA Group

In between sessions, come and learn about Panax at Booth 239 or book a meeting directly. Panax was founded by former finance professionals, to solve the pain suffered by lean finance teams with complex treasury needs. Panax simplifies your cash complexity in one secure, flexible and easy to run platform, so you can minimize cash risk and optimize liquidity. Come along to take part in our raffle to win some awesome Lego prizes (you can pre-register here) and collect a cute baby Panax panda. 

And two bonus sessions we also recommend:

Simplifying the World of Cross-border Payments

We are living in the world of everywhere commerce. Social commerce picked up, and companies of all shapes and sizes are starting to support online payments. How can companies looking to venture into this space set up an e-commerce solution that integrates into treasury processes with minimal investment and effort? And how can the more established payment companies make cross-border payments easier and more streamlined to deliver the best user experience for customers?

In this session, hear from treasury and payments professionals across different industries who have successfully integrated international payments into their core product offering, consequently building a new revenue stream for their company.

Speakers

Saif Ashraf, Lead, New Business Treasury Implementations, Google Inc.

Christopher Mager, Senior Director, B2B Connect, Visa

Anand Natarajan, TMT and Fintech Head, Cash Management, Standard Chartered Bank‍

FX Netting: Untangling Global Intercompany Currency Flows

Approaching a treasurer to discuss their top FX priorities inevitably brings up the elephant in the room: simplifying the intercompany settlement process. This aspect is widely recognized as a significant opportunity for enhancing process efficiency and achieving cost savings, yet it often lingers low on the priority list. But is it as daunting as it seems? Join this session for firsthand details of a successful IC netting program roadmap, and a journey in optimizing an established program amidst decentralized ERP systems. Attendees leave armed with practical tips, innovative tools, and fresh ideas, regardless of where their organization stands on its journey to navigating the global intercompany FX flows.

Speakers‍

Brandon Larsen, VP of Sales and Trading (Central), GPS Capital Markets

Heber Wygant, Director of Tax & Treasury, Sundyne LLC

Bryan Ritts, Global Cash Manager, Wilsonart LLC

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Interested to learn how Panax can help with your cash management needs? Book a meeting directly.

Sign up in advance for our raffle‍

‍The EuroFinance conference in Copenhagen is one of the premier global events for finance professionals, offering deep insights into treasury, risk management, and emerging financial trends. With so many sessions to choose from, it can be hard to prioritize. Here’s our pick of five unmissable sessions that will help you stay ahead of the curve.

Higher for longer: interest rates and global growth, Wednesday 9.45am Main Stage

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‍Presenters: 

• Thomas Harr, Chief economist, head of economics and monetary policy, Danmarks Nationalbank
• Jeromin Zettelmeyer, Director, Bruegel AISBL

Session description: Global growth will continue to slow in 2024 at around 2.5 percent average, well below the historical levels that we have seen in the past two decades, due to high inflation and tightening monetary policy. Analysts predict interest rates will remain ‘higher for longer’, impacting market growth.

In terms of economic recovery the emerging markets, Asia and Africa, lead the way at 3-6 percent growth. Slightly down on previous forecasts, the world’s largest economy in the United States will see growth at around 1-2 percent according to the Economist Intelligence Unit. Europe will grow just slightly above 1.4 percent, with Germany in recession in 2024.

Behind the growth figures and predictions, inflation continues to slow the drag on growth and monetary policy easing slightly in 2025. In this session economists discuss the likely interventions of the European Central Bank and the Federal Reserve as well as central bank actions in emerging markets in the coming year to deliver a global analysis on rates and growth.‍‍

‍Revolver roulette: risks in corporate loan refinancing: Wednesday 2.00pm, Liquidity and Financing

Presenters: 

• Ramón Tolk, Senior director treasury, Avery Dennison
• Joe Fonseca, VP, global treasurer, Crocs Inc.
• Alan Chitty, Group treasurer, Pepco

Session description: Some $11 trillion dollars of global corporate loan refinancing is due to come on stream in 2024/5 signalling the biggest refinancing exercise in corporate history, according to leading rating agencies. With many revolver loans taken out at lower rates in the covid period now reaching term maturity, a huge volume of debt will need to be financed at higher rates in the coming year.

In this session we look at the challenges in refinancing and restructuring corporate debt in current markets and how treasurers and CFOs are working together to manage refinancing risks. Strategies include modelling the impact of refinancing loans across the business and managing maturities and covenants in line with the overall capital structure and risk tolerance of the business.

Treasurers on the panel will speak from the perspectives of investment grade and non investment grade ratings status.

Forecasting: the real intelligence, Thursday 11:50am, Stream 1: Cash controls

Presenters:

• Jeppe Østergård Sørensen, Senior treasury manager, LEGO Group
• Iain Currie, Director treasury operations, Prologis
• Jörg Wiemer, Co-founder, chief evangelist & lead advisor, TIS

Session description: Cash forecasting has come under intense focus in the current rate environment with many treasurers citing the ability to accurately predict cash flows into the next business cycle as the most important priority that they currently face.

Interestingly companies are still working with many different forms of cash forecasting tools, from spreadsheets to sophisticated and AI assisted forecasting. Yet essentially the accuracy of forecasting reflects the quality of the data and the visibility of cash, to the treasurer.

Treasurers comment that ‘progress, not perfection’ is the key to process improvement to more accurate forecasting, by robust data sourcing to narrow the margin of error. In the session treasurers discuss the challenges in creating ever more accurate forecasts and the solutions that they have found, working with strategic partners to create forecasts that can quickly adapt to changing business environments.‍‍

AI-powered treasury management and cash flow forecasting, Thursday 2.20pm in the Innovation Hub

Session description: Panax CEO Noam Mills, a former CFO herself, will demo the Panax platform, designed for lean finance teams with complex treasury needs. Panax’s AI and Automation driven platform gives you full visibility and control over your global cash management, with no IT necessary to set up or run the platform. With proactive insights and alerts, the Panax platform helps you to keep your finger on the pulse, so you can reduce cash risks and optimize liquidity. 

Noam is giving away some great Lego prizes at the Panax booth. You can also pre-register here to be in with a chance to win. 

Tech trends for corporates and consumers, Friday 9.10am 

Session description: As corporations are increasingly defined by their technological competitiveness and technology is evolving exponentially in all spheres, this session will explore some of the key trends and developments, parallel with AI, that are shaping future tech for companies, markets and society.

Taking in great advances in the “internet of things” which is connecting billions of devices and wearable tech that keeps us connected anywhere and everywhere, whilst generating a massive amount of data, enabling companies to optimise operations and create new customer experiences. Whilst the metaverse has yet to materialise in any popular way and the immersive digital reality experience is attracting less investment than when Meta was created, many believe in the future for immersive technologies.

The rise in cloud computing and the sharing of information and resources across workplaces and communities through cloud platforms is enabling digital economies to flourish. Blockchain too is finding new and niche applications in business.

On the negative side, cybersecurity is a big concern for companies, creating challenges around the storing and sharing of information and data. Regulation also acts both as an enabler and a harness to data intensive technologies, with protections around data sharing. Here we ask the big questions of big tech and signpost future directions in digital trends for corporates and consumers alike.

Presenters

• Debbie Kaya, Senior director of treasury, Cisco Systems, Inc.
• Robert Torvelainen, Chair, European Tech Alliance
• James Kelly, Group treasurer, Pearson
• Simon Jones, Independent treasury expert

These sessions will equip you with the knowledge and tools to navigate the evolving financial landscape. Don't miss out on these opportunities to gain insights from industry leaders and network with peers from across the globe!

Looking forward to seeing you at EuroFinance 2024!

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.

‍‍
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. 

Cash flow monitoring is the tracking and analysis of inflows and outflows, to ensure financial health. In this guide, we cover everything there is to know about cash flow monitoring, from how it works, to recommended frequency to responsibilities, and more. Read to learn how to better improve your financial decision-making and which tools can help.

What is cash flow monitoring?

Cash flow monitoring is the systematic process of tracking, analyzing, and managing the inflow and outflow of funds within a business. By closely monitoring cash flow, businesses can ensure they have sufficient liquidity to meet their short-term obligations, avoid potential cash shortages, and make informed financial decisions. As a result, they can safeguard against financial disruptions and foster stability and growth.

Why is cash flow monitoring important?

Cash flow monitoring is a recommended practice for organizations of any size, from 1-person businesses to mega-enterprises. This is because the benefits of cash flow monitoring include:

• Improved financial health - By regularly tracking the movement of funds, businesses can ensure they have enough cash on hand to meet their obligations, such as paying employees, suppliers, and creditors.
• Better risk management and decision-making - A real-time view of cash inflows and outflows allows businesses to anticipate potential cash shortages or surpluses and make informed decisions accordingly. This includes adjusting spending, postponing or accelerating investments, or seeking additional financing if necessary. Additionally, understanding cash flow trends allows businesses to make strategic decisions, such as expanding operations, entering new markets, or negotiating better terms with suppliers and lendersEffective cash flow monitoring is the backbone of financial stability, enabling businesses to proactively manage their cash reserves and anticipate potential financial challenges."
  

Effective cash flow monitoring is the backbone of financial stability, enabling businesses to proactively manage their cash reserves and anticipate potential financial challenges

Step 1: Outline Processes and Systems

• Determine how often you will review cash flow—daily, weekly, or monthly—depending on your business’s size and complexity.
• Choose and implement accounting software or financial management systems to automatically track and record cash transactions.
• Configure your cash flow monitoring systems to alert you when cash balances fall below a certain threshold or when there are significant deviations in expected inflows and outflows.
• Set up a process for regularly reconciling your bank statements with your cash flow records to ensure all transactions are accounted for and to identify any discrepancies. You can do this manually or automatically with your chosen software. 

Step 2: Define Inflows and Outflows

Clearly define inflow and outflow categories:

• Cash inflows include sales revenue, accounts receivable, loans, financing, asset sales, and interest income.
• Cash outflows include operating expenses, accounts payable, loan repayments, capital expenditures, taxes, and fees.

Step 3: Use Cash Flow Templates

Cash flow templates are designed to help you simplify, organize, and analyze your cash flow data in a structured format. This makes it easier to spot trends, anticipate future cash needs, and make informed financial decisions.

Depending on your business’s needs, you can select templates that focus on different time frames, such as weekly, monthly, or quarterly cash flow projections. In many cases, you can customize the templates to fit your specific business operations.

Integrate these templates with your chosen system, enabling automatic data population and real-time updates.

That’s it! You’re now ready to begin monitoring your cash flow.

Cash Flow Monitoring Frequency

The frequency of cash flow monitoring should be tailored to your business’s specific needs:

‍Daily Cash Flow Monitoring

Business Type: Businesses with high transaction volumes or with tight cash flow margins
Requirements: Checking bank balances & recording all cash inflows and outflows
Purpose: Ensuring that cash on hand is sufficient to cover immediate needs

Weekly Monitoring

Business Type: SMBs with stable cash flow patterns or businesses with predictable income and expenses
Requirements: Reviewing cash balances, accounts receivable and payable, and any upcoming financial obligations
Purpose: Ensuring there is enough liquidity to meet payroll, supplier payments, and other essential expenses

Monthly Monitoring

Business Type: Larger organizations with well-established cash flow processes or companies with longer payment cycles
Requirements: A comprehensive review of the previous month’s cash flow, including detailed analysis of cash inflows and outflows, budget variances and financial forecasts 
Purpose: Identifying trends, planning for future cash needs, and making strategic adjustments to the business plan

Quarterly/Annual Monitoring

Business Type: All businesses
Requirements: Evaluating cumulative cash flow data, assessing the accuracy of forecasts, and adjusting financial strategies for the upcoming period
Purpose: Assessing long-term financial performance, making significant investment decisions, preparing for tax obligations and setting budgets for future periods

Monitoring Responsibilities

Assigning clear responsibilities for cash flow monitoring helps ensure that this important task is handled efficiently and effectively. The specific roles responsible for this function can vary depending on the size and structure of the organization. Here's how:

Start-up

The primary focus at this stage is on maintaining liquidity, ensuring that the company can cover essential expenses, and making informed decisions about scaling operations or seeking additional funding.

• Founder(s) - Overseeing all financial aspects, including cash flow monitoring, budgeting, and financial planning. They make critical decisions about expenditures, investments, and revenue management.
• Finance Manager/Accountant - If the start-up has a dedicated finance person, they will take over daily and weekly cash flow monitoring, generate reports, and advise the founders on financial decisions.

Mid-market

The focus in a mid-market company is on optimizing cash flow to support growth, managing working capital efficiently, and making strategic investment decisions.

• CFO - Overseeing the overall financial strategy, including cash flow management. They set policies, review financial reports, and make high-level decisions based on cash flow data.
• Controller - Managing the day-to-day accounting operations, including cash flow monitoring, ensuring that all inflows and outflows are accurately recorded, and preparing regular cash flow statements.
• Financial Analysts - Supporting the controller by analyzing cash flow data, forecasting future cash needs, and identifying trends that could impact the company’s financial health.

Enterprise

The focus in an enterprise is on strategic cash management, ensuring liquidity across multiple business units, optimizing cash flow for large-scale operations, and supporting global financial strategies.

• CFO - Leading the financial strategy. They have ultimate responsibility for ensuring that the company maintains a strong cash position. To do so, they work closely with other executives to align cash flow management with the company’s long-term goals.
• Treasurer - Managing the company’s cash and liquidity, including cash flow monitoring, managing bank relationships, and optimizing the use of cash resources.
• Controllers (Business Units) - Each business unit or division may have its own controller responsible for monitoring cash flow within their specific area. These controllers report up to the corporate controller or CFO.
• Financial Analysts - Monitoring cash flow by conducting detailed analyses, creating forecasts, and providing insights that guide decision-making across the company.
• Accounts Payable/Receivable Teams - Managing the inflows (receivables) and outflows (payables), ensuring timely collection of payments and managing disbursements to suppliers and vendors.

Cash Flow Monitoring vs. Cash Flow Forecasting

Cash flow monitoring and cash flow forecasting are two closely related, but distinct, financial practices in business liquidity and financial health management. While they are complementary, each serves a different purpose in the financial management process.

As discussed above, cash flow monitoring is the ongoing process of tracking and analyzing the actual inflows and outflows of cash within a business. It involves keeping a close watch on how much money is coming into the business (such as from sales, loans, or investments) and how much is going out (such as for operating expenses, loan repayments, and other expenditures). The goal is to ensure that the business maintains sufficient liquidity to meet its immediate and short-term obligations.

The primary focus of cash flow monitoring is on the present and recent past. It provides real-time or near-real-time insights into the business’s current cash position, helping to identify any immediate issues or discrepancies. Monitoring helps businesses react swiftly to cash flow problems and make informed decisions to maintain operational stability.

Cash flow forecasting, on the other hand, is a forward-looking practice that involves predicting the future cash inflows and outflows of a business over a specific period, such as the next month, quarter, or year. Forecasting is based on historical data, current financial conditions and assumptions about future revenue, expenses, and market conditions.

The primary focus of cash flow forecasting is on the future. It aims to predict potential cash shortages or surpluses and to plan for upcoming financial needs. This helps businesses make strategic decisions about investments, growth, and funding, ensuring they are prepared.

Together, cash flow monitoring and forecasting provide a comprehensive view of a business’s financial health, enabling both immediate and strategic decision-making. Effective cash flow monitoring provides the data needed to improve the accuracy of cash flow forecasts. Conversely, forecasting can inform monitoring practices by identifying key areas to watch closely in the short term.

Cash Flow Monitoring vs. Cash Flow Management

While cash flow monitoring has been discussed above, cash flow management is the planning, controlling, and optimizing the flow of cash in and out of a business. It encompasses a range of activities aimed at ensuring that the business has enough cash to meet its obligations, invest in growth opportunities, and remain financially healthy over the long term.

The primary focus of cash flow management is on both the short-term and long-term financial stability of the business. It includes not just monitoring cash flow but also forecasting future cash needs, managing working capital, optimizing payment cycles, securing financing and strategically planning for the use of cash reserves.

Cash flow management includes cash flow monitoring, forecasting, budgeting, and analysis. The data and trends identified through cash flow monitoring serve as the foundation for cash flow management decisions. Effective monitoring enables businesses to react to immediate cash flow issues, while management strategies ensure long-term financial health.

Pains of Current Cash Flow Monitoring Methods

Many businesses still rely on traditional methods such as Excel-based tracking and manual bank account management for monitoring their cash flow. While these methods can be effective to a certain extent, they also come with significant challenges and limitations that can hinder efficient financial management.

Excel-Based Cash Flow Monitoring

• Excel sheets require manual input of data, which is time-consuming and prone to human error. Even small mistakes, such as a misplaced decimal point or a forgotten entry, can lead to inaccurate cash flow statements, causing businesses to make decisions based on flawed data.
• Excel-based cash flow monitoring is often not updated in real-time. This makes it challenging to maintain an accurate view of the business’s current financial position.
• Managing growth within Excel can become cumbersome, with spreadsheets becoming more complex and harder to navigate. This can lead to inefficiencies and increased risk of errors as more data points and formulas are added.
• Sharing and updating the same file among multiple users can lead to version control issues, where different team members may work with outdated or conflicting data. This lack of collaboration can slow down decision-making and create confusion.

Bank Account Management

• Relying solely on bank statements provides a fragmented view of the company’s financial health. Bank statements typically reflect only completed transactions, which might not account for outstanding invoices, upcoming expenses, or other commitments.
• Bank account management often involves reconciling bank statements with internal records, a process that can be delayed by several days or even weeks. This delay means that businesses might not be aware of cash flow issues until it’s too late to address them proactively.
• Bank account management focuses on the present balance, without offering tools for forecasting future cash needs or identifying potential shortfalls. This makes it difficult for businesses to plan effectively and avoid cash flow crises.
• Reconciling multiple bank accounts manually is time-consuming and can be a tedious process, particularly for businesses with complex financial operations. This effort takes valuable time away from more strategic financial management tasks and can lead to missed discrepancies or errors.

Conclusion

When it comes to managing cash flow, many businesses find themselves using outdated methods like Excel-based tracking and manual bank account management. These traditional techniques are rife with inefficiencies, errors, and risks that can severely undermine a company's financial health.

With Excel, the manual input of data is time-consuming and error-prone. On the other hand, relying solely on manual bank account management offers a fragmented view of your financial health. These outdated methods are risky, drain valuable time and resources, divert attention from more strategic financial management tasks, and expose the business to financial risks.

Panax is a comprehensive cash flow management solution that automates and simplifies the tracking, analysis, and forecasting of your cash flow, while providing real-time insights that enable for making informed decisions. 

• Automation and Accuracy - Panax automatically pulls in data from various banks and financial institutions, ensuring that cash flow records are always accurate and up-to-date.
• Real-Time Monitoring and Forecasting - Panax offers real-time monitoring and predictive analytics that enable foreseeing potential cash flow issues before they arise. With advanced forecasting tools, Panax empowers treasury teams to plan effectively, ensuring the business always has the liquidity it needs to thrive. 
• Collaboration - Panax facilitates seamless collaboration among teams, eliminating version control issues and ensuring that everyone is working with the most current data. 

Panax not only simplifies cash flow monitoring but also enhances your ability to manage and plan your finances strategically, ensuring long-term stability and growth. Start today.

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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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Cash flow management is the lifeblood of your treasury operations. It allows you to properly and accurately track the money that is coming in and out of your business and to forecast cash flow needs. A comprehensive and reliable data set is the basis for a reliable and effective management of cash flow.

In this blog post, we co​​mpare three popular technologies used to gather cash data including: file-based systems, APIs and modern data connectivity systems. We dive in to see which ones help CFOs and treasury teams obtain accurate and relevant data to enable financial health and relevant forecasting.

Cash Flow Management Requirements

Before diving into the three technologies, let’s look at the requirements treasury teams have from cash management technologies and solutions:

A modern cash flow management solution should ensure:

• Data freshness - Providing and displaying fresh and up-to-date financial information, at all times. This allows you to always have a clear and up-to-date picture of the company's financial situation and health. Fresh and up-to-date data is essential for managing liquidity, optimizing working capital, avoiding potential cash shortages or surpluses, addressing discrepancies and enhancing overall financial accuracy.
• Data richness - Ensuring financial data is complete in depth and breadth, including transaction descriptions, vendor descriptions, information on transaction senders and receivers, historical data and multicurrency data support. Rich data provides a comprehensive view of all financial transactions, trends, and patterns, enabling more accurate forecasting, granular financial analysis, and improved budgeting and strategic planning.

• Format standardization - Creating standardization among financial data and establishing standardized formats for financial data entry, reporting and documentation. This ensures consistency, accuracy and efficiency across financial processes, leading to improved overall quality and reliability of financial information.
• Security - Implementing access control to determine who can interact with financial systems and what data they can access. This protects sensitive financial data from breaches and cyber threats, maintaining the trust of stakeholders and ensuring compliance with security standards and regulations.
• Future-proofing - Adopting scalable and flexible financial management tools that integrate with other business systems, are capable of handling increasing transaction volumes and complexities as the business grows, and use AI to enhance analytics and insights.
• Streamlined processes - Simplifying and automating tasks such as information gathering, cash categorization, cash positioning, reporting, trends analysis and forecasting. This allows finance teams to focus on strategic activities rather than administrative duties, leading to better decision-making and more reliable forecasting. Additionally, reducing friction in cash flow management enhances the user experience, resulting in happier, more productive treasury teams.

The Problem with File-based Systems

Cash flow management has relied mostly on file-based systems for performing financial transactions and reporting activities. This often involves direct connections to banks using SFTP servers, with files being transferred daily or at intervals of several days. Legacy companies sometimes even resort to proprietary system access. Even the widely-used SWIFT network still operates on messages, which are basically file-based.

These systems are better than their predecessor - manual actions. They help make the process more efficient and provide better visibility and control.

However, these systems also create their own set of challenges for treasury teams.

• Setting up and maintaining file-based transactions is a complicated and manual process. It  requires specialized knowledge, cutting through red tape, overcoming cumbersome processes with multiple steps and stakeholders and constant upkeep.
• File-based connections lack modern security measures.
• Not all file formats are created equal. From MT940 to BAI2 to other formats, ingesting, aggregating and normalizing these data formats is a complicated and error-prone process.
• Files are delivered in bulk, meaning data is updated periodically rather than in real-time. This compromises the ability to make real-time decisions and have an accurate financial picture at any given time.
• Multiple file formats delivered at different times can compromise data quality.
• Data granularity is limited to the information sent in the file, rather than being enriched by a system.
• File-based systems lack the ability to scale, integrate with modern systems and evolve with technological advancements.
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Seamless data connectivity is the backbone of modern financial decision-making, enabling accurate, real-time insights that drive business success

Are APIs Enough?

Many financial teams use APIs provided by banks, payment processors, financial service providers, financial aggregators and other financial entities. These APIs are used to connect their own internal systems with these external services. APIs act as the intermediaries, enabling secure and standardized communication between different systems. With APIs, treasury teams can enhance operational efficiency and enable better financial management.

However, despite the advancements APIs enable, connecting via APIs still involves friction for treasury teams:

• Setting up API connectivity is cumbersome, manual and sometimes complex
• The provided data is not always standardized and therefore lacks a real-time view of the financial status
• The data arriving from the financial institution, may be lacking and missing, sometimes due to the way APIs were configured
• Not every bank or institution offers an API, and not all APIs are the same. While some are robust, fast, and easy to implement, accompanied by clear documentation, others lack any or all of these features. 

Modern Data Connectivity Systems

The next generation of connectivity comes with the new model data connectivity systems. These data connectivity systems leverage the advantages of each type of technology while adding on more layers of data, normalization and analysis.

Modern data connectivity systems include:

• File-based connections and APIs
• Additional host-to-host connections
• An additional layer of synthesis and analysis, presenting all financial information in a standardized and easy to consume format
• A real-time and rich picture of the financial status and health
• Modern integrations and technologies
• AI for better data quality

These capabilities reduce overhead, enhance data quality and support scale. They are also flexible enough to adapt to any future needs.

File-based vs. APIs vs Modern Data Connectivity: A Comparison Table

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Conclusion

Optimal and accurate cash flow management is essential for building and maintaining healthy treasury operations. Choosing the right technology ensures you always have an up-to-date view of your cash flow position, complete with insights for forecasting, without worrying about the overhead of adding data or security.

Learn more about Panax’s modern data connectivity technology here. 

Last Friday, CrowdStrike experienced a significant outage due to a flawed software update. This update caused widespread disruptions across various sectors, including airlines, banking, media, and telecommunications. The root cause was identified as a defect in a content update for Windows hosts, leading to system crashes and bootloops on millions of computers. CrowdStrike is now saying that an automatic restart for falcon will soon be available, which means faster recovery time.

Which Financial Institutions were Affected?

According to Downdetector, several major banks have been impacted by the outage, including Barclays, HSBC, Bank of America, Wells Fargo, and JP Morgan Chase. Not just banks were affected but also payment services like PayPal, Venmo and others were affected.  These disruptions have led to delays in processing payments, accessing banking services, and completing financial operations, affecting the banks' clients and causing significant operational challenges.

Implications for Companies

Companies that rely on these affected banks were facing potential disruptions in their financial transactions. This can lead to delays in payments such as cash flow, payroll processing, and other critical financial activities, which can impact business continuity and financial stability. There are some types of companies that are more vulnerable to payment delays than others, such as manufacturing and supply chain companies, retail and e-commerce businesses.

What Are the Suggested Contingency Plans?

To mitigate these impacts now and in the future, companies should consider the following contingency plans:

1. Alternative Banking Services: Establish relationships with secondary banks to ensure continued access to critical banking services.
2. Emergency Funds: Maintain a reserve of emergency funds to cover essential expenses like payroll and vendor payments during disruptions.
3. Communication: Keep stakeholders informed about the situation and expected delays in financial operations.
4. IT and Cybersecurity: Strengthen IT and cybersecurity measures to protect against secondary issues stemming from the outage.

Remember when SVB Collapsed? Is there a similar effect? 

Despite the differences in causes (CrowdStrike's outage was a technical failure, whereas SVB's collapse was a financial mismanagement event), the CrowdStrike outage shares similarities with the Silicon Valley Bank (SVB) collapse in terms of effect, as both caused disruption to financial services and created operational challenges. Both events also required immediate contingency planning. 

Conclusion

Once again, we witness things we never imagined could happen. For businesses navigating this challenging period, proactive planning and diversified financial strategies are essential to mitigate risks, including those that are unpredictable. Monitoring the status of critical service providers and having robust contingency plans in place can help manage the impacts of such unforeseen disruptions and maybe even recognize opportunities in them, As Zig Ziglar said: Expect the best, prepare for the worst,capitalize on what comes.

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Finance teams are required to forecast cash for multiple reasons:

• Staying ahead of upcoming inflows and outflows and preventing a potential short fall of cash 
• Identifying opportunities of excess cash that can be invested and gain interest 
• Contingencies/requirements from investors or banks

But despite the fact that forecasting is a critical tool in financial planning, many organizations struggle to get it right.

Common challenges include data inaccuracies, time-consuming manual processes, and the reliance on outdated methods. These issues can lead to unreliable forecasts, making it difficult for businesses to plan for the future, manage cash flow, and mitigate risks effectively.

Panax's forecast feature is designed to address these challenges head-on, providing businesses with a powerful tool to navigate their financial future with confidence.

Cash forecasting with the Panax platform

Panax’s forecast capability allows our customer to build a monthly forecast. The goal is to allow our customers to foresee their expected inflows and outflows and the expected balance, so they can maintain control and make data-driven decisions. The forecast can either be built at a company level or per entity and then aggregated to a company level.
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Why forecast with Panax? 

• Accuracy - Panax connects to all your banking data, providing an easy and automated way to base your forecast on historical data and future ERP data. This allows you to easily and more accurately plan future inflows and outflows.
• Automation - We generate the forecast automatically each month by rolling your forecast based on your input assumptions and updated actuals. 
• Bottom up and customized - We allow you to create forecast methods based on your knowledge of the cash flow. Each category can be configured per your understanding and adjusted to your needs.
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How Panax forecasting works

Initial setup

First, define a forecast method. This will determine how the forecast is populated. You can choose between a few different methods:

1. ERP-based - If you have an ERP connected to Panax, you can pull your expected invoices from the ERP and place the total amount as a forecast for the time period they apply to. You can then layer on additional forecast methods for the following months, from additional sources of data. 

2. Recurring amount - Input an amount that repeats monthly. You can also add a formula to increase/decrease the amount month-over-month.

For example, if your office and rent expenses are $120,000 you can input that amount. It will be populated throughout each month of the forecast for that category. 

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3. Based on historical data - By bringing in all your actuals, you can rely on the historical behavior of a certain category to build a forecast. This will be based on the average over a certain period, the growth rate over a certain period, or on your annual growth rate.

For example, if your sales are seasonal, you can build the forecast for your collectionsit to be based on the same month last year’s month sales + add a growth rate.

4. Based on data from another category - You can also rely on amounts from other categories, which means your forecast can be calculated as a % of that category. 

For example, if your shipping expenses are 3% of last month’s collection, you can add that method point to last month’s collection. Panax will populate the forecast for shipping, based on the forecast for collection.

5. Manual input - You can also manually define an expected amount per month and use that as you forecast. 

For example, if your marketing spend is based on a plan you receive from the marketing team, you can just input the spend manually per month.

Actuals vs. forecast 

When the month ends, we will automatically roll the forecast and create a new version that is based on the updated actuals. You will see an end-of-month summary that compares this current  month actuals vs. forecast: 

Based on this summary you can adjust and optimize your forecast for the following month. 

Reporting and analytics

Use the variance report to review what was forecasted for a specific month in a previous months version of the forecast vs. what you are forecasting now. For example, if in May your forecast showed the Closing balance in July to be at a certain amount and then in June the forecast was updated and now the closing balance for July shows a lower amount, you can drill down into the inflows and outflows to better understand what in the actuals / forecast was changed that caused that difference. 

By leveraging the variance report, you can:

1. Identify Discrepancies: Quickly pinpoint where and why discrepancies between forecasts occur, whether due to changes in revenue, expenses, or other financial factors.
2. Improve Accuracy: Use insights from the variance analysis to adjust your future forecasts, making them more accurate and reflective of real-world changes.
3. Enhance Decision-making: Gain a deeper understanding of your cash performance, allowing for more informed strategic decisions and proactive liquidity management.
4. Increase Accountability: Track and explain variances to stakeholders, ensuring transparency and accountability in your forecasting process.

Learn more about Panax forecasting and how automation can help you do your job better.

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The Windy City Summit 2024 in Chicago brought together treasurers, finance professionals and industry leaders to discuss the latest trends and challenges in the financial sector. At Panax, we had the pleasure of participating in the event. The session “Beyond the Buzz: Practical AI Applications for Cash Management", presented by Panax’s VP Product, Adi Barak, garnered significant interest. In addition, we spoke with hundreds of attendees, at our booth and between the sessions.

Here are some of our key observations and insights from the event:
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1. AI is top of mind

AI was the hottest buzzword at the Windy City Summit. It seemed like everyone was keen to learn how they could apply AI to their operations. Attendees we spoke with stated that AI was becoming a key component in their financial operations. In addition, our session about practical applications for AI in cash management attracted considerable interest throughout and afterwards.

We predict that AI is set to revolutionize treasury management. AI has the ability to quickly analyze, surface insights and build accurate and explainable reports. We’ll see the impact of these capabilities across various practices, and especially in transaction categorization and forecasting. 
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2. Challenges in Forecasting Persist

Forecasting is a critical tool for cash management and investment opportunities. However, we heard that treasurers are still struggling with forecasting. Many of them, including those from large multinational corporations, continue to rely on manual processes and spreadsheets. But this is error-prone, tedious, inefficient and just plain annoying.

New technological solutions, like automated platforms that categorize data, connect directly to ERP systems and automate forecasting - address these gaps. They provide automated real-time data insights and historical trend analysis, making forecasting streamlined and insightful.

This need has become especially pressing in our current interest rate environment. Organizations are grappling with high interest rates and volatile markets. They need to optimize liquidity and plan strategically. Forecasting can help ensure optimal use of their funds and cash flow.
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3. Technological Collaboration with Banks

Treasurers’ expectations have changed. They expect seamless integration and real-time access to rich financial data and analytics from banks and financial institutions. In other words, they’re looking for an iPhone experience to replace their current legacy platforms. However, banks currently lack such modern solutions for managing complex global transactions. Therefore, they are reaching out to build partnerships with cutting-edge technological vendors, to develop and provide innovative solutions to treasurers.

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Thank you to all attendees who shared their insights with us. We enjoyed learning from you and we’re looking forward to the exciting future of treasury management.

To learn more about how Panax can help you manage cash flows and forecasting, click here.

Excel is the world’s most popular spreadsheet, among both individuals and companies. Finance teams in particular rely on Excel for a variety of tasks, many considering it a vital accounting and finance tool. This is primarily due to its flexibility, availability, and, let’s be honest, because it has been ingrained in finance work practices for decades.

However, Excel also presents challenges, like complexity, inability to collaborate and it being error-prone. This dual sentiment towards Excel has resulted in what has become known as the finance “Love/Hate Relationship”.

Let’s dive deeper into the reasons underscoring this relationship, what finance teams should look out for when working with Excel and when should they consider complementary solutions.

Advantages of Using Excel

Finance teams love Excel. Here’s why:

• Versatility and flexibility - At its core, Excel is a versatile and flexible solution, and that’s the biggest benefit it offers to finance and treasury management. Excel's functionalities (see below) allow finance teams to perform any task they need, in a way that is customized to their liking. This includes financial modeling, budgeting, forecasting, data analysis and more.
• Built-in functionalities: Excel provides multiple functionalities that finance teams need for their roles, like formulas, pivot tables, charts and more. These can be created fairly simply, allowing for cash management and predictions.
• Robustness - Excel supports more than millions of lines of data. This means businesses, including global organizations, can easily manage all their needs inside.
• Direct accessibility to data - Excel allows finance teams to do what they love best - touching and feeling the data. They can slide and dice the numbers in multiple, versatile ways, to explore new possibilities and identify new solutions.
• Availability - Excel usage is so high simply because it’s included in every Microsoft Office license. This makes it accessible and available to finance teams everywhere, without having to look around for other solutions. In addition, its ubiquitous use means that finance professionals transitioning to new companies do not have to go through platform onboarding (though they will need training on the new team’s specific excel layout and formulas).
• Cost - For those already using Microsoft Office, there is no additional cost incurred. This, as we all know, makes it a finance-favorite

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Disadvantages of Using Excel

However, Excel also poses challenges for finance teams. For example:

• Error-prone - One of the most significant issues in Excel is the error-prone nature of manual data entry and formula setting. A simple mistake, like a misplaced decimal or an incorrect range in a formula, can result in monumental errors, affecting financial statements and strategic decisions. 
• Cost of a mistake - A solution that is error-prone should be considered in light of the cost of being misleading or misinformed about the cash position. The likelihood of errors when copying data manually is higher, which may result in poor decisions when managing cash. Being unable to pay salaries or make vendor payments, losing funds or "parking" them in low-return channels for too long are all caused by bad-decision making that come with a high price. In every company, the cost of error is different, but without full visibility, these errors are not only more likely to occur but also take longer to discover. 
• Complexity - Financial models in Excel are becoming more complex, with data being collected across tabs and formulas. This information maze makes the Excel difficult to navigate, audit, update, validate, track and version. Such uncertainty can lead to a lack of trust in the data, especially when significant decisions rely on these models.
• Time-consuming - Manually entering data in excel takes time. This could include adding bank statements from multiple bank accounts and often multiple banks, inputting information from suppliers, gathering information from multiple global entities in different currencies and more. The more complex the spreadsheet, the longer it takes. 
• Collaboration obstacles - Excel’s cannot be worked on together in real-time, making collaboration and version control a significant challenge. When decisions need to be made quickly, based on the most current data and from a variety of data sources, Excel's traditionally single-user focus can be a bottleneck.

For example, if you have 10 different departments, all with their own versions, CFOs are required to wade through the various versions to compile a total financial picture. Multiple versions of the same file make it difficult to track and explain the changes between the different versions.

• No real-time picture of data - Collaboration obstacles also make it challenging to obtain a real-time, reliable picture of the data and cash flow. Having to manually data from different Excel versions and accounts means that the data is only as updated as the last manual entry. This makes it difficult to make real-time decisions and slows down strategic decision-making as well.
• Takes time to master: New users can easily create basic spreadsheets and produce new charts and graphs. But if you need to use macros, pivot tables or complicated formulas, expect a very steep learning curve.
• No integrations or automations - Excel cannot be integrated with data from other departments or with external platforms to get insights and make decisions. This makes the work repetitive, error-prone and inconsistent

While Excel offers versatility in financial tasks, its limitations in handling complex data and collaboration can lead to inefficiencies and increased risk of errors

Excel Alternatives

Excel can be used by finance teams until the finance operation becomes complicated at a certain point in a company's lifecycle. At that point, automated treasury solutions either can help address Excel’s shortcomings or replace it: the potential errors, complexities, the need to collaborate among global local teams, the unnecessary time spent manually entering data, lack of real-time visibility, the complex onboarding to existing formulas and lack of integrations and automation.

An automated treasury or cash flow management tool provides visibility, increases capital efficiency and gives finance teams full control. With automated treasury management solutions, finance teams can automatically:

• Manage liquidity, invest excess cash, minimize debt, and eliminate unnecessary costs.
• Foresee cash needs, identify trends and anomalies, and be prepared for different scenarios.
• Get Al-driven cash insights and trends and eliminate the need for unnecessary, error- prone spreadsheets.

Automated tools are capable of covering their cost and more, by increasing ROI on existing cash, optimizing debt management, reducing errors and frauds and maximizing productivity. Learn more here.‍

Every finance team in every company manages treasury tasks. This is a fact of life. Companies have bank accounts, cash inflows and outflows, debt and/or investments, multiple currencies, and/or any intercompany transfers – so they have treasury operations to manage.

These operations tend to start off fairly simple – the accounting team can easily manage a few intercompany transfers, some currency exchanges, and cash flow tracking and reporting.  However, as companies grow, things become very complex, very quickly. Growth means more banks across more geographies, more currencies to manage, more accounts to balance, and much more time needed to track and control cash flows.
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The entire operation becomes very difficult with the increasing complexity and all the other, non-treasury tasks that are on the team’s plate.  In addition, beyond control, the goal of every finance team within large organizations should also be to make optimal cash decisions and manage the company’s liquidity efficiently.

That’s why large organizations have a Treasury Department. The time and resources needed to be in control of cash flows and optimize liquidity warrants a dedicated team within the finance department. This raises the question: How do you know it’s the right time to hire a treasurer and start building a treasury team? 
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As a company grows in scale and complexity, hiring a treasurer becomes essential for effective financial risk management and ensuring long-term financial health

Vast Cash Footprint

When companies manage over a dozen accounts in multiple banks and currencies, things start to get messy. It’s like juggling balls in the air, a few balls are fine but any additional ball makes the task more and more difficult, and increases the risk of dropping some balls. At this point, the team needs to dedicate time on a daily basis to track all the accounts and analyze inflows and outflows. A treasury team will take care of this, to ensure full control and avoid potential risks.

High Volume of Inflows and/or Outflows 

The higher the volume and variety of cash inflows and outflows, the more tedious it becomes to understand main cash drivers and ensure full control. Again, this starts off easy – tracking tens or hundreds of transactions is not too bad, but when this number increases to many thousands, someone (the treasury team) needs to keep track of these inflows and outflows.

Using Debt and Credit Lines.

Credit is great. It enables companies to finance their growth and working capital in an efficient manner. It can also be quite expensive. The higher the amount of credit a company uses, the higher the incentive to manage it proactively to reduce interest payments. Whether it’s choosing the best facility of the ones available, or timing credit withdrawals and repayments to reduce credit utilization, once debt is significant enough, there’s an easy ROI for proactive credit management.

Large Investment Portfolio 

While having a lot of cash on the balance sheet can hardly be considered a problem, the more available cash a company has, the higher the incentive to “put that cash to work” and generate interest income. In today’s interest environment, every $1M invested, even in a liquid money market account, can easily generate $50K interest per year.

Optimizing investments requires first and foremost to identify the amount of operational cash needed, both present and future needs, and then to make the most of the residual cash. Thus, there’s a need for proactive management of all operational accounts, benchmarking interest rates and choosing the right time horizon that supports present and future cash needs.

Rely on Manual and Error-prone Processes

Lack of automation and reliance on manual processes greatly contribute to cash flow management complexity; an automated cash flow management platform that streamlines banks and ERP data connectivity, automates reporting, creates proactive alerts and treasury policies and enables easy and smart cash flow forecasting, could potentially delay the need for a inhouse treasurer significantly.

Alternatively, the same solution can be extremely helpful to newly appointed treasurers in improving their effectiveness and efficiency, and help them hit the ground running when entering a new and challenging role. In both instances, treasury automation can be highly beneficial to mid-sized companies struggling with rapidly increasing cash flow complexity.

What Now?

As companies grow, managing treasury tasks becomes increasingly complex, which calls for dedicated Treasury departments. The need and right timing for hiring a treasurer is determined by several indicators, such as the number of bank accounts and currencies, transaction volume, utilization of debt and credit lines, and management of an investment portfolio.

Manual processes break as these challenges amplify, highlighting the need for automation in treasury management. Implementing an automated cash flow management platform can streamline operations, and delay the need for a treasurer (or enhance the treasurer’s effectiveness) but one thing is certain – treasury becomes an increasingly important and strategic part of the financial management of a company.

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As businesses navigate an increasingly uncertain economic landscape, managing cash flow, liquidity, and financial risks has never been more critical. Today, we’re excited to announce that Panax has secured $10 million in Series A funding, led by Team8 and TLV Partners, to further our mission of transforming treasury management for mid-market and large enterprises.

The Challenge Finance Teams Face

For finance teams operating in complex environments—managing multiple bank accounts, currencies, and entities—gaining real-time visibility and control over cash flows is a constant challenge. Traditional treasury management systems often fall short, requiring hours of manual data gathering and leaving teams vulnerable to errors and inefficiencies.

Our Solution: AI-Powered Cash Flow Management

Panax addresses these challenges head-on with our AI-driven platform that consolidates financial data from banks, ERPs, and other sources into a single, unified view. Our solution automates transaction categorization, surfaces critical insights, and provides real-time cash forecasts, empowering finance teams to optimize liquidity and make data-driven decisions with confidence.

Our customers have seen remarkable results. Many report saving over $100K annually on interest payments, while others have increased their cash invested in interest-bearing accounts by 15-20%. Perhaps most importantly, Panax has freed up 15-30 hours per week that were previously spent on manual data tasks, allowing finance teams to focus on more strategic initiatives.

The Road Ahead: Scaling with New Funding

With this new round of funding, Panax is poised for rapid growth. We plan to expand our U.S. presence with a new office in New York City, scale our sales and support teams to meet rising market demand, and accelerate product development to bring even more powerful features to our platform.

Our leadership team—CEO Noam Mills, CTO Sefi Itzkovich, and CBO Niv Yaar—brings deep expertise in both finance and technology, having experienced these pain points firsthand. It was this firsthand knowledge that inspired the creation of Panax, and it’s what drives our commitment to delivering value to our customers.

Investor Confidence and Vision

Our investors share our vision for the future of treasury management. Hadar Siterman Norris, a partner at Team8, emphasized, "The evolving role of the CFO requires strategic foresight and innovative tools. Panax is uniquely positioned to lead in this space, delivering tangible value to finance teams across industries."

Yonatan Mandelbaum, a partner at TLV Partners, added, "Panax is set to become the operating system for finance teams, orchestrating all aspects of financial operations. The combination of finance and tech expertise within the Panax team is what sets them apart."

Join Us on This Journey

As we embark on this next phase of growth, we’re excited to continue working with our customers to redefine what’s possible in cash flow management. If you’re ready to see how Panax can transform your treasury operations, book a demo today or visit our website to learn more.

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.

In today’s current interest rate climate, finance teams are well aware that investing surplus cash can significantly contribute to the company’s overall financial performance. Many companies establish an investment policy and negotiate with their banking partners to maximize interest rates that they get on various products – from money market accounts to term deposits, and even funds held in their checking accounts. Yet, the interest rate is only one part of the yield equation, the other part is the amount that’s invested.

In an earlier blog post, we explored various ways to optimize buffers and manage cash across multiple accounts. The focus of this post is on another highly effective but often overlooked method for maximizing invested cash – proactive working capital management.
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Working capital definition

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Working capital (defined, for the purpose of this post, as accounts receivable + inventory - accounts payable) is definitely a tough nut to crack. While interest rate negotiations and intercompany money movements fall under the sole control and responsibility of the finance team, working capital doesn’t. It involves other departments and stakeholders: the sales team influences customer payment terms, the operations and supply chain teams define the inventory policy, and various stakeholders influence supplier payment terms.

This causes many finance teams to avoid facing the challenge of optimizing working capital. When interest rates were close to zero it didn’t matter that much. But things have changed. Every dollar that can be freed up from working capital and invested in interest-bearing accounts is now translated into interest income that directly contributes to the company's bottom line.
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Real-time working capital management is crucial for businesses to quickly adapt to market volatility and optimize their liquidity, ensuring sustained financial health

Before initiating any steps to unlock cash from working capital, it’s imperative to understand the potential impact. While working capital can never be zero, calculating the actual value of working capital and monitoring changes and trends over time is key. There are two important benchmarks to consider:

1. Comparing working capital against your company’s historical performance. This can help the team identify root causes and other key issues that need to be addressed. 
2. Comparing your company’s working capital to external benchmarks. Public companies that operate in a similar space can serve as a great benchmark. If your company’s WC consistently exceeds that of its peers, that should raise a red flag right away.
    

After the initial benchmarking, it’s critical to start measuring relevant KPIs on an ongoing basis. DSO and DPO are a good starting point, but these metrics are usually only calculated monthly after the month-end closing (or even worse, quarterly!), rendering them difficult to act upon in real-time. Introducing real-time, actionable metrics such as weighted average days to cash (WADTC) and weighted average days to pay (WADTP) can help finance teams identify issues quicker and respond more effectively.

Once the right metrics are in place and a continuous monitoring process implemented, teams can easily uncover opportunities for working capital improvement and take action. Since working capital is often a cross-company responsibility, it becomes crucial to communicate the KPIs and status with everyone involved to secure buy-in and accountability.

Wrapping things up 

The current market condition, with high interest rates in the foreseeable future, provides a significant incentive for every finance team to streamline its working capital management. Although things can get quite messy at times , defining the right KPIs, monitoring them on an ongoing basis, and communicating the underlying causes to the organization are all critical factors needed to release precious cash from working capital. 

Every dollar that’s freed up can be leveraged to reduce interest costs or invested to generate interest income. Either way, it’s pure cash flow and the moment to take action and act on this opportunity is now.

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Nowadays, it's hard to imagine a reality in which banks and fintech are not closely intertwined. But this wasn’t always the case, and it was only during the last decade or so that we've witnessed banks open up their digital gates to fintech solutions in an effort to improve their operations efficiency, brand reach, competitive edge, customer retention, and customer satisfaction.

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Fintech Fusion

This year's Bank Fintech Fusion was held in late October to celebrate the inseparable and growing bond between the banking and tech worlds. Each year, this event puts a spotlight on tech companies that help push the boundaries of traditional banking and offer tangible solutions to costly problems.

That's why we're beyond thrilled to share that Panax has hit yet another major milestone by being selected as the "Best-In-Show Fintech" startup for 2023.
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We are truly grateful for this outstanding recognition, and firmly believe it's a testament to our ongoing commitment to disrupt traditional cash flow management using automation, unmatched assets connectivity, and AI.

The Panax team is continuously dedicated to helping finance teams around the world regain full visibility into their cash reserves across accounts, banks, and currencies, optimize their cash flow management, make smarter investment decisions, and plan ahead using proactive, AI-driven alerts.

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As companies grow and expand their operations and commercial activities, finance teams find themselves managing an increasingly complex cash footprint. 

They often manage dozens of bank accounts scattered across a number of financial institutions, handle accounts in various currencies, and oversee cash stored in non-bank institutions like payment processors, PayPal, and FX wallets. 

This creates a slew of challenges, from operational friction, to counterparty risk management, and down to a growing lack of control. In turn, these lead us to one of the biggest head-scratchers finance teams face nowadays, which ironically also has the most impact on their company’s bottom line – how to improve capital efficiency when cash is so extensively distributed?

In the current interest environment, every dollar counts. Finance leaders strive to invest excess cash to maximize yield on one hand, and minimize usage of credit facilities to reduce interest costs on the other. 

To address the capital optimization challenge, which is likely to intensify given the growing wave of globalization and global expansion, let’s go over a simple 3-step framework that will help your team optimize capital efficiency across multiple accounts:
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Consolidating financial accounts is a key strategy for reducing inefficiencies and ensuring that capital is managed effectively across the organization

1 - Define and measure your top-level metrics

The first step to improving any metric is to clearly define it so you can properly measure it. When it comes to capital efficiency, even a simple KPI such as % of cash in interest-bearing accounts (% IBC) is a great starting point. 

Monitoring it will undoubtedly help you lead better cash management and at the very least – raise important flags regarding your company’s cash utilization.

2 - Identify drivers and set up buffers

Once a top-level metric is defined, it’s critical to understand what’s driving it in a more methodical way. In the case of % IBC (interest-bearing cash), the second-level metric we should focus on would be the amount of operational cash needed in each account. 

Since this number tends to fluctuate significantly over time, it’s good practice to define “buffers” – minimum and maximum cash thresholds that are highly likely to ensure account liquidity. Defining these buffers can help you shed instant light on inefficiencies and opportunities for IBC improvement. 

Adding a time dimension to these buffers can often have a massive impact on your capital efficiency. Some accounts require liquidity only on specific dates, which are often monthly and follow a clear historical trend. Enabling the buffers to fluctuate with each account’s monthly needs is therefore a great way to improve your IBC rates on an ongoing basis.

3 - Set up a cash forecast and monitor your liquidity

The highest level of buffers planning is building and maintaining a rolling cash flow forecast. This is a great tool to help you understand upcoming cash needs and identify trends in a granular way, so you can more accurately understand the required buffers that optimize capital efficiency, and then take immediate action when needed.

Bear in mind that access to fresh data is key to be able to properly track balances across your accounts. While monitoring can be performed manually, it’s an incredibly tedious, time-consuming process that becomes increasingly harder to manage as companies open more and more accounts. 

Automating your bank connectivity is how you can turn real-time, account-level liquidity insights into timely decisions that will have a direct impact on your company’s performance and bottomline.

In today’s fast-paced and complex reality, the incentive to take back control, proactively manage cash flows, and optimize capital efficiency – is loud and clear. Automatically measuring, monitoring, and managing capital efficiency are key to ensuring cash is efficiently managed and effectively utilized.

Remember: any day in which cash is sitting idle is a waste. It’s time to stop the squander.

Sooner or later, finance operators discover that, as their companies grow, managing daily treasury operations becomes increasingly complex and time-consuming.

Daily tasks and operations, such as cash positioning and reporting, accounts balancing, payments, and FX conversions, begin to pile up and become challenging to manage manually. Teams that wish to maintain full visibility and control resort to spending more and more of their precious time and resources on these labor-intensive chores. Time that could be better spent on more strategic tasks.

The solution is simple, yet critical: automating treasury processes.

After speaking with over 200 CFOs, treasurers, and finance leaders, we've identified two key types of complexities that make it impossible to scale efficiently, and make the need for automation abundantly clear.

Cash Footprint

Companies that own multiple accounts, spread their financial activities across several banking partners, platforms (processors, expense managers, wallets, etc.), legal entities, or currencies, find it virtually impossible to run even basic performance analyses – like getting a snapshot of their current cash position.

To add to this complexity, building direct cash reports manually, in an effort to ensure full control, explain current position, and understand cash trends – is borderline hopeless. 

The amount of data collection and processing, as well as the work required to create these critical visibility tools, brings companies to reduce their reporting cadence. In other words, instead of a daily cash position and weekly cash reports, companies opt for bi-weekly, monthly, or even quarterly reporting frequency.

This means that by the time these companies look at their numbers, they are already far behind the curve and any decision their teams take is based on lagging data. 

Imagine your life if Waze told you to make a right turn 10 minutes after you passed the junction. Useless, right?

Cash Flow Complexity

Finance teams that deal with the following complexities:

1. Growing volumes of inflows and outflows
2. Significant working capital – inventory, long collection cycles, prepayments, etc
3. Capital intensive businesses, with high CAPEX or frequent M&As
4. Credit lines, loans, or cash deposits that are baked into their financial structure

These are just a few examples for cash flow complexities that call for constant monitoring of past, present, and future cash flows. Finance teams in these companies have to make daily, time-draining decisions to ensure that the timing of their inflows meets the timing of their outflows in an optimal way. 

But to make informed decisions, finance teams must have an accurate cash position and a detailed rolling cash-flow forecast, and manual maintenance of these processes simply doesn’t cut it anymore. Reducing reporting granularity levels or cadence are not the solution either, because getting it wrong means higher interest payments on credit lines, lower interest income on interest-bearing accounts, unnecessary fees, more unpleasant surprises, and higher level of risk to relationships with both suppliers and customers. 

Bottom line – higher costs, lower profit, increased risk.

If you can identify with any of the above challenges, don’t stress and know there’s a better way. Cash flow and treasury management processes don’t have to be painfully lengthy, and automating them can actually help your company meet critical performance KPIs while freeing your time to focus on bigger, better things.

To learn more about the future of treasury management and the automation tools you have to get familiar with in 2024 contact us today.

Finance and treasury teams have always been managing treasury operations, even before Excel came into existence.

Tracking payments, making intercompany transfers, hedging currency risks, and managing debt and investments aren’t new tasks. Moreover, many of these tasks are repetitive, inefficient, time-consuming, and error-prone. But still, up until recently, mid-size companies and small enterprises used manual processes to track, monitor, and manage cash flow, leaving automated treasury management systems to large enterprises.

This trend is now shifting, with more mid-size and small enterprises companies looking for ways to automate their treasury and cash flow management. And for good reason – a number of important developments make cash flow management more critical than ever for these businesses, creating a strong incentive to optimize and automate processes:
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Rising interest rates

The end of ZIRP and rising interest rates, create a need to manage both cash reserves and debt more efficiently. There’s a huge incentive to optimize yield on one hand and minimize cost of capital on the other. 

Poor cash management leads to significant losses and missed income opportunities for companies that hit the bottomline harder than ever before in the last 15 years. Another possible contributor, also related to the end of ZIRP, is that capital became more scarce, which means the need to efficiently manage existing capital has become greater.
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Globalization

Companies are going global at an increasing pace, opening off-shore accounts,e and transacting in more currencies than ever before. This global movement opens up a much wider pool of opportunities for commercial expansion on the one hand, but on the other - it also creates a more decentralized cash footprint, which is much harder to track and manage. 

So while the world is becoming smaller, finance teams' workload is blowing up to almost unmanageable proportions.
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Increased counterparty risk

SVB and FRB’s implosion turned the spotlight on banks’ financial stability. This means that knowing that your company’s cash is stored in a reputable bank is simply no longer enough. Because of that, more boards and management teams are demanding that finance leaders adhere to a strict policy, and hedge against counterparty risk by opening and managing accounts across multiple banks. 

This “placing your eggs in multiple baskets” strategy, while mitigating some risks, also makes it more challenging for finance teams to track and manage cash flow, creating an increased demand for real-time cash visibility and control.

Final thoughts

The convergence of the trends above, coupled with the accelerating availability of banking APIs and other open banking solutions, are enabling new and improved solutions that better fit the needs of mid-size companies. 

There’s an unprecedented opportunity for finance leaders to act now and get rid of manual, error-prone, time-consuming processes. Automating your treasury operations is how you can enable your company to save precious time, regain control, and most importantly – improve your capital efficiency. It’s high time to get smarter.