Making ‘mission impossible’ possible: How AI and automation improve forecasting and cash flow management

In today’s volatile economy, navigating the complexities of financial forecasting has become an intricate and essential challenge. Organisations are still recovering from the long-term effects of Covid-19 and rising inflation, and cash flow management continues to be a challenge. As a result, finance departments, and specifically accounts receivable (AR) teams, find themselves at the forefront of this volatility.

The rise of late payments has contributed to this challenging landscape. These have introduced unpredictability into businesses’ cash flow and hindered reliable financial projections. Research from Ivalua shows that 52% of businesses have paid suppliers later compared to 12 months ago, due to higher costs and market uncertainties.

With AR staff responsible for a myriad of tasks, including credit management and collections, ensuring accurate forecasting when dealing with cash flow issues can feel unachievable. Is this ‘mission impossible’? To navigate these financially turbulent times, improving cash flow management and forecasting abilities is critical.

Forecasting – a business imperative

Forecasting is a business imperative for an effective AR team, especially in today’s volatile economy. AR sits at the heart of an organisation’s ability to estimate future cash flow, identify potential problems, and make sound financial decisions. Effective forecasting helps businesses to assess customer payment behaviour and anticipate which accounts may pay bills late. Organisations can then act accordingly by sending reminder notices, or even take legal action when invoices become significantly past due.

The setbacks – silos, inaccuracies, and insufficient resources

Despite the importance of forecasting, many AR teams struggle to forecast accurately due to poor quality data. Data silos, caused by information stored within disparate systems, are largely to blame for poor quality data. Silos hinder the efficient flow of data and hamper collaboration between departments, occurring more frequently in AR teams with ineffective cross-departmental communication. Finance departments often struggle to access information across multiple functions and teams, making accurate forecasting near impossible. Data silos are also more prevalent in organisations where there’s no universal software, making the transfer of information a challenge.

Inaccurate data is caused by human error during the data input process, and repetitive and manual tasks are a primary cause of these errors. Due to these mistakes, finance teams are forced to depend on inaccurate context and insight, which makes it impossible to accurately predict and control their company’s future. A survey by Deloitte and Kyriba found that 53% of professionals polled admitted their cash forecasts were only “somewhat accurate”. Without reliable data, AR teams can’t produce accurate forecasts.

Most significant is a lack of technology resources which makes it difficult to automate tasks related to cash flow forecasting. This leads to errors and delays in the forecasting process. Manual forecasting is time-consuming and labour-intensive, which increases the challenge of keeping up with the demands of a growing business. Not to mention when economic circumstances change suddenly, and teams do not have the agility to factor these into their forecasts, effectively rendering them useless.

The secret weapon – AI and automation

To avoid data silos and elevate financial management from the ‘impossible’ to the ‘achievable’, staff must be equipped with the right technology. AI and automation enables teams to optimize financial management and thrive. SSON Research suggests businesses are aware of the need to automate; 57% of organisations plan to implement automation this year to help with manual tasks in AR that are prone to human error. By adopting automation, AR staff can manage data more effectively, while continuing to execute other essential activities.

Paired with automation, AI allows AR departments to revolutionise their approach. By embracing predictive analytics powered by AI, staff can accurately anticipate customer payment behaviour and make strategic collections decisions based on risk level. Insights from AI-powered predictive analytics are fed into digital dashboards, providing a comprehensive overview of a company’s current and future financial health. Predictive analytics also helps AR departments by identifying customers classed as ‘higher risk’. The technology then suggests targeted credit mitigation measures as a response, such as setting stricter payment terms.

Cpl, a recruitment and talent solutions provider, identified the need to introduce AI and automation to assist its AR department with accurate forecasting and cash flow management. By implementing Quadient AR, the team was able to contact customers more effectively for due payments through automating collection workflows, analysing business risks, and prioritising customer accounts. Through this approach, Cpl transformed ‘mission impossible’ into ‘mission accomplished’, increasing cash collection by 3.8% during the pandemic.

Making the impossible, possible

To future-proof their finances, finance departments must proactively embrace technologies such as AI and automation to manage their cash flow. By doing so, issues such as late payments are better dealt with to optimise working capital and risk management. The Autumn Statement 2023 offers vital support for businesses grappling with late payments and the resulting cash flow challenges. However, relying solely on external measures will prove insufficient amid ongoing economic uncertainty.

Whether businesses are dealing with staff turnover, supply chain challenges, or late payments, cash flow forecasting is vital to managing these pain points. By using AI and automation within finance management, organisations are empowered to redefine the narrative and thrive in uncertain times, transforming ‘mission impossible’ into ‘mission accomplished’.

Quadient will be exhibiting at Accountex London on 15-16 May 2024 at ExCel London. Join the mailing list to be notified when free registration opens, here.

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