Beyond the initial setup for Cash Flow Forecasting in Microsoft Dynamics 365 Business Central: Making your cash forecast model work!

Cash flow forecasting in Microsoft Dynamics 365 Business Central (BC) really can be simple to set up. But did you know there is more to it than running Assisted Setup to create a forecast and assigning it to the role center chart? With so much flexibility, BC gives us the opportunity to make choices and use multiple forecast models if needed.

Before we get started with next level options in cash flow forecasting, let’s get a better understanding of the different types of cash flow reporting available in Business Central.

Statement of Cash Flows

The statement of cash flows, also called cash flow statement, shows where money came from and how it was spent, and reports using historical transactions. This financial statement often complements the balance sheet and income statement. It summarizes the amount of cash and cash equivalents coming in and going out from operating activities, investing activities and financing activities during a reporting period.

In Business Central, this report can be addressed out-of-the-box with a standard Financial Report. In fact, an example is provided if you create your production company using the option that includes setup data. Alternatively, you can easily create your own report based on posted general ledger entries using Financial Reports.

Cash Flow Forecast

Cash flow forecasting is predictive and used to model a company’s financial liquidity over a specified, future time frame. A cash flow forecast paints a picture of the future financial situation of your company using expected income and expenses. Unlike the Statement of Cash Flows, this report is not looking only at what happened in the past. In BC, this reporting can be addressed out-of-the-box by using assisted setup to create your first forecast model. Additional models can be created manually if needed.

Challenges when cash flow forecasting

Challenges on what information to use and how to present that information in a cash flow forecast will vary by company and even frequently between decision-makers within a single organization.  When forecasting, you are building a model. The need to build more than one model may be required. Considerations in forecasting that may require different models include:

1. Customers that consistently pay after the payment terms of the invoice, making the use of the invoice due date for cash inflows inaccurate.
2. Paying some vendors early to be kept at a “preferred” status during these supply chain challenged times making the use of the invoice due date for cash outflows inaccurate for these vendors.
3. Recognizing expected sales and/or expenses that cannot yet be entered as orders or invoices
4. Seeing the impact of taking payment discounts on cash requirements
5. Different definitions for what should be considered liquid
6. Frequency of updating the forecast

Setting up a forecast taking these considerations into account can be done in minutes. Not only will you have a matrix to quickly see your future cash position, but to see the information presented in a chart.

Configuring your Cash Flow Forecast

After using “Configure the Cash Flow Forecast chart” from Assisted Setup, you may find that you need to perform additional setup to meet your cash flow model requirements. Let’s look at how to address each one of the challenges listed above using standard BC cash flow forecasting capabilities.

Customers that pay on their own terms, not on the payment terms of the invoice

To recognize the actual payment terms used by customers in lieu of the terms you have asked of them, use Cash Flow Payment Terms on the Customer Card. When a Cash Flow Payment Terms Code has been selected on a customer card, the forecast will use these terms to calculate the cash inflow date instead of the Payment Terms Code assigned to the customer when Consider CF Payment Terms is selected in Cash Flow Setup.

Paying vendors early to be kept at a "preferred" status during these supply chain challenged times

To recognize the actual payment terms used by accounts payable in lieu of the terms assigned to you by the vendor, use Cash Flow Payment Terms on the Vendor Card. When a Cash Flow Payment Terms Code has been selected on a vendor card, the forecast will use these terms instead of the Payment Terms Code assigned to the vendor when Consider CF Payment Terms is selected in Cash Flow Setup.