What is it and why is it interesting for your business?
Ensuring accurate treasury forecasts is crucial for any business, as it directly impacts financial planning, liquidity management, and risk mitigation strategies.
By accurately predicting cash flows, a company can optimize its capital allocation, manage working capital effectively, and make informed investment decisions. Additionally, reliable treasury forecasts enable proactive management of financial risks such as liquidity shortages, interest rate fluctuations, and currency volatility, reducing the likelihood of financial crises or disruptions to business operations. Furthermore, it optimises collection management to prioritize customers with highest likelihood and importance to be contacted.
How does it work?
In our approach, we utilize both regression and classification algorithms to generate predictions for treasury forecasting. With regression algorithms, we predict a numeric value, while classification algorithms allow us to predict multiple classes with associated likelihoods. Given these options, we opted for multiple classification predictions with predefined buckets, offering a broader understanding of potential delays and their severity.
- Step 1: predicting if an invoice will be paid on time, yielding a binary outcome of "Yes" or "No."
- Step 2: if the invoice is predicted to be unpaid, we predict whether it will be settled before the end of the month, recognizing the significance of month-end, quarter-end, and year-end deadlines in finance.
By leveraging these forecasts, our customer can optimize cash pooling strategies, ensuring efficient allocation of funds across accounts and minimizing idle cash balances. Additionally, they can strategically request loans in specific currencies based on predicted cash flows, mitigating currency risks and optimizing borrowing costs. Lastly this provide prioritization to the collections team within their contact strategy by defining a prioritized call list for each customer.
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