Question

what is Cash Flow Forecasting? why is so important? in work compared to everyday life?

Answer 1

Cash flow forecasting:

Cash flow forecasting is a process of obtaining a forecast or estimate of future financial position based in anticipated receivables and payments.

For smooth running of business every day, cash is important. It can be considered as a early warning system to identify potential cash balances in advance. Business becomes insolvent, if it is run out of cash and not able to obtain new finance from creditors or lenders. Forecasting encourages to identity the problems (if any) in customer payment. How quickly it is receiving payment from the customer. It helps to identify whether it is able to pay its dues to creditors in time.

There are two types of cash flow forecasting:

1. Direct Forecasting - short term
2. Indirect Forecasting – long term