Money Movement

Cash Flow Forecasting Solution Can Help With Late Payments

    • circle-one-color.svg
    • FNBO

      Commercial Banking
      Sep 01 2021

Late Payments Can Sink Businesses— A Cash Flow Forecasting Solution Can Help

Cash is king. It’s a common adage and one that businesses know all too well.

Companies rely on the cash flow from incoming payments to meet liabilities and cover operating expenses. Yet for 47% of businesses, the number of late payments is increasing, interrupting the flow of cash and impeding the organization’s ability to meet its own financial obligations.

The good news is that technology is making it easier than ever to manage the impact of late payments. A well-rounded forecasting solution can identify gaps in cash flow, offering better financial management and liquidity.

Understanding the Impact of Late Payments

A recent survey found that a quarter of small and mid-sized businesses (SMBs) are experiencing longer  payment cycles, up to 20-30 days beyond initial due dates. For 30% of these businesses, late payments make it challenging to keep the company up and running, impacting operational areas such as hiring (40%) and inventory purchases (39%).

It becomes an issue of cash flow, as organizations expect vendors to pay on time and then budget their expenditures accordingly. When payments come in late, the company is unable to meet its projected commitments, putting the company under financial strain.

Businesses that make payments late can be cut off from suppliers. In one real-world example, a large auto manufacturer recently was forced to suspend operations due to a lack of materials as suppliers with overdue invoices refused to send shipments of necessary goods.

Tracking down payment on overdue invoices is another pain point for many businesses. Following up on late payments is labor intensive and requires the business to expend funds hiring employees to chase down overdue receivables at a time when cash flow is limited.

To alleviate the risk associated with late payments, the business needs to accurately predict receipt of payments and manage cash flow, an area where technology is increasingly easing the way.

Accurate Cash Forecasting Aided by Technology

When it comes to making accurate cash projections and planning for liquidity gaps, recent advancements in technology are eliminating the burden of cumbersome spreadsheets and manual calculations. Artificial intelligence, for example, considers past patterns in cash flow to make accurate predictions about the future.

By synthesizing historical data from customers and combining it with broader trends around seasonality and the like, AI makes it possible to identify customers that will pay late. This type of predictive intelligence then allows companies to make more targeted decisions about their own outgoing payments. For example, the use of credit can allow the business to make on-time payments to cover expenses, while delaying the date when the cash is actually removed from business accounts. If it’s predicted that your customer will pay late, you can also use this opportunity to send reminders before their payment due date to try to get ahead of a possible late payment.

Automation is another modern marvel that when applied to cash forecasting can help businesses get paid faster. For instance, automated e-mail messages remind businesses to send timely invoices and alert companies when invoices are overdue, allowing the organization to easily follow up on collection. Simplifying the collections process in this way allows the company to achieve more without taking up valuable employee time that drives up the cost of accounts receivables.

By implementing a well-round cash forecasting solution, businesses can gain the benefits of AI and automation, but these are just a few of the tools available. Additional capabilities include automated aids that can help the company mitigate many of the risks it faces.

For example, many companies are willing to offer credit terms to customers, but it isn’t always easy to assess credit worthiness. Utilizing technology, businesses can quickly and easily receive insights to evaluate customer risk and even determine compliance and reputational risks for the organization.

Last, by utilizing a cash forecasting solution, businesses are consolidating records in one location, with a single point of access, eliminating the need to rifle through notes, emails and spreadsheets to retrieve data on an individual customer or a group of customers. Simple advancements like these offer big benefits, allowing the business to respond faster to payment inquiries, thereby accelerating time to payment.

Optimize Cash Flow with Centime

By digitizing cash forecasting, businesses are accelerating payments while also identifying liquidity gaps and receiving useful intelligence for managing shortfalls. Centime can help your business do the same. Learn how cash flow automation through Centime can simplify cash forecasting and improve liquidity management for your company or visit our website to get started today.

The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.