In an environment of rising interest rates, unstable political environments and uncertain future of trade, the accuracy of corporate cash forecasts come into sharp focus because of the dual effects of the direct cost of debt, and the opportunity cost of holding uninvested cash.

Commercial debt is currently at a record high, and while not a concern yet, this does increase the sensitivity of the economy to interest rate moves. The best defense in this environment? An accurate cash flow forecast!

Increase cash flow forecast accuracy – Easy!

Often in business cash flow becomes important only when there is a lack of, which is commonly caused by the lagging of sales, suppliers demanding payments and the pressures from the deadlines of business loans. An accurate cash-flow forecast allows a business to stay afloat while you wait for the profit.

The accuracy of such forecasts can be continually increased through the cyclical process of measuring, analysing and adjusting. However, measuring cash flow forecast accuracy can be a challenge. So here are a few things to keep in mind when you are trying to increase your cash flow forecasting accuracy.


To begin increasing cash flow accuracy, you have to begin with measuring how inaccurate it actually is.

Cash flow forecasts often include large volumes of data points, but this task isn’t as difficult as everyone thinks, particularly so, if the forecast was run with accuracy in mind. If a forecast was run only with closing cash balances, a business will only be able to measure closing cash balance. Whereas an in-depth transactional cash flow data is available a business will be able to measure more accurately. However, transactional cash flow forecast is rarely run in a large business, particularly so if a business is doing well.

When it comes to certain types of forecasts, some have a better chance at measuring its accuracy than others.

For example, forecasts based only on historical data, therefore measuring only on closing cash balances and based on previous months, quarters or years data are susceptible to growing more inaccurate as the time passes. As they don’t consider the outside factors that might influence a business, only previous seasonality.

So, choosing a type of forecast and how often to forecast is the first step to understanding your forecast’s accuracy. But if you don’t have a choice on how to run your forecasts, consider certain data points you can measure your accuracy against.

Data analysis

Once you have chosen what points to measure, the next step is to perform data analysis.

Analysing closing cash positions and net cash movements will provide a good understanding of overall forecast accuracy. Cash generation and working capital-based analysis will give a better understanding of your cash flow performance. From this one can start setting some key metrics to be measured and that will help lead the rest of accuracy analysis.

Additionally, it can be very useful to use as much as historical data as possible, especially if there are some historical forecasts available as well. This will help set a baseline of forecast accuracy and business performance overall.

Moreover, review any additional information you have about the industry, the business, or the market overall. Using such information can help you review which parts might have been overlooked in a cash flow forecast previously and what might be useful to include. For example, if your forecasts before were based only on past performance, and you find that economic metrics have impacted your business significantly, start accounting for them in your future forecasts to improve accuracy.


Measure, measure, measure! The only true way to improve and increase cash flow forecast accuracy is to keep measuring, analysing, and adjusting! To do so, however, one always needs to keep a keen eye on the business. While many companies still manage their cash flow forecasting using time heavy tools, an increasing number are using a more practical cash flow forecasting software, that can help improve the process easily.

Subscribe to our newsletter to learn more about financial planning, forecasting, and risk assessment!