Advanced Cash Flow Forecasting in Dynamics 365 Business Central

From budgeting to advanced financial forecasts, Microsoft Dynamics 365 Business Central provides reliable tools that businesses can use to analyse their cash flow based on historical data to make predictions for future periods.

In this blog, we look at the Cash Flow Forecast feature, an advanced reporting tool based on the Microsoft Azure Machine Learning (ML) and Cortana Intelligence capabilities built in the Business Central framework.

Why Use Cash Flow Forecast?

The Cash Flow Forecast feature gives an in-depth insight into the cash flow available in the business, which is an essential KPI and financial indicator of solvency and liquidity.

The Azure ML models various scenarios and makes cash flow predictions for an extended period following the longevity and precision of the data provided.

While most ERP tools make use of budgeting and cash flow tools, tedious and unpractical manual data entry often limits the time horizon for cash flow forecasts, which need longer data sets to generate more accurate predictive behaviours.

The amount of verifiable historical data provided via an ERP system is important to determine the accuracy of any future financial predictions. Historical data used to determine cash flow predictions includes customer ledger entries for receivables, vendor ledger entries for payables, as well as tax and VAT information.

In Dynamics 365 Business Central, data automation, statistical methods and business intelligence functionality can generate models of time data series to calculate advanced forecasts as opposed to the traditionally limited cash flow estimations.

How to Use the Cash Flow Forecast Functionality

Firstly, to benefit from the advanced cash flow prediction functionality, you will have to turn on the Azure Machine Learning in Business Central.

The Azure ML is a free benefit you can use every month up to a limit, namely a specified amount of computing time that you can use to model your data sets and generate the predictions. Once you pass this limit, you can either continue next month for free or better subscribe to the ML service.

Next, go to the Cash Flow setup page to specify which predictive model you are likely to use (see Time Series Model), or you can choose all the options, in which case Business Central will apply every option to calculate the forecast. The system will compare the results generated to enable the best prediction.

Finally, ensure the range of predictions is more accurate and not too wide. A Variance field in the Cash Flow Forecast setup allows you to input a range of deviation deemed acceptable. The lower the variance, the better and more accurate the forecasts.

The cash flow forecast value generated is represented by a probability range and not a single data point, with the default probability at 80% that cannot be changed.

For best results, use a shorter time horizon if you have less financial data available (less than a year), but you should be able to generate quality reliable predictions up to several months ahead for data captured constantly for more than two years.

Get more info from the Dynamics 365 Community, and contact us for any assistance with Dynamics 365 Business Central.

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