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Digital Accounting – Cashflow Forecasting

Digital Accounting – Cashflow Forecasting

What is it?

Over the last couple of years, we have seen more and more digitalisation of business finance functions and accounting processes. Two things have caused this:

  1. The introduction of legislation, such as Making Tax Digital.
  2. Increased knowledge of the benefits, such as improved efficiency and cost-saving.

Cashflow forecasting is one area of the finance functions that is now being heavily digitalised.

Who is it for?

All businesses.

It is especially for those businesses that struggle with cashflow or would like to streamline their current forecasting function.

How does it work?

Cashflow forecasting is the process of estimating a business’s future financial position. It is generally based on anticipated receivables and payables.

You can achieve the digitalisation of this process through several applications that link to your accounting software. However, it is worth noting that some accounting software now offers this as part of their package.

Once the application is linked to your accounting software, it will look at many areas, including receivables, payables, trends of prior spending, VAT payments and refunds, and corporation tax payments. It will then make a forecast of future cashflows with these parameters in mind. The best thing about these forecasts being digital is that they are now live and instantly updated when a change is made in the accounting software, which dramatically reduces manual entry when forecasting.

Most of these forecasting applications now also come with other valuable features. For instance, you may be able to use your forecast and gain business funding/financing within the same platform for a period in which your forecast suggests you are struggling. Or some offer credit control features to help chase receivables, which may improve your cashflow forecast in the future.

What should I do next?

The next step is to evaluate your business's current forecasting function. If it could do with streamlining or if you are struggling with cashflow each month, it may be worth looking into a forecasting application.

The first place to look would be your current accounting software. Some softwares are now offering a forecasting function as part of their own package. This may save unneeded expenditure on a new application. An example of this would be Xero.

In Xero, you can now go to the 'Business' heading and look for the 'Short-term cashflow' feature under the analytics tab. This will provide either a 7 or 30-day projection of future cashflows, as shown below.

Xero will also give some friendly suggested actions that you can follow to improve the projection and therefore plan your cashflow better.

Alternatively, you could look at a third-party application that integrates with your accounting software. These are usually more sophisticated than the built-in systems and offer additional features. However, remember these usually come at a charge.

An example of one of these applications is Fluidly. Fluidly specifically can offer a more enhanced forecast, spanning a longer period than the Xero forecast. They also provide a planning feature where you can add scenarios to your forecast and then see the effects these decisions have on your cashflow, for example hiring more staff.

Fluidly also offers a credit control chasing feature used to improve debtors' control and a funding feature that allows a business to source finance during difficult periods from within the application.

These are just a couple of examples of forecasting applications, and there are many more out there. Still, it is clear that the future of planning and forecasting is moving to a digital state as the need for live information increases.

The choice of application is entirely personal. It depends on the business needs, but if you have any questions, please do not hesitate to contact Ollie Morton on 01865 261100 or via his email.


First Published 22 October 2021
Last Updated 22 October 2021

22 October 2021
First published.

Find out more about Ollie Morton

Ollie Morton

Ollie Morton

Ollie is a Senior Outsourcing Assistant in our Outsourcing Team