In what ways can cash forecasting help with the collections?

The financial forecast is critical to your business plan, especially if it is for the purpose of getting a bank loan. More importantly, you are an investor in your own business and you must have confidence in the validity of your business concept. Use a financial forecast to prove to yourself that your business will generate your desired profit and when it will start to make that profit.

A financial forecast is a vital tool in the financial management of your business and, like your business plan, requires regular review and amendment to be effective. Once the period for which you prepared the budget is over, be sure to compare the actual results against your budget forecasts. Examine why variations have occurred, take any remedial action necessary to correct the problem, or plan for them accordingly in your next budget.

Advantages of an effective financial forecast:

Demonstrates the financial viability of a new business venture. Allows you to construct a model of how your business might perform financially if certain strategies, events and plans are carried out.

Allows you to measure the actual financial operation of the business against the forecast financial plan and make adjustments where necessary.

Allows you to guide your business in the right direction and take control of your cash flow.

Provides a benchmark against which to measure future performance.

Identifies potential risks and cash shortfalls to keep the business out of financial trouble.

Provides an estimate of future cash needs and whether additional private equity or borrowing is necessary.

Assists you to secure a bank loan or other funding. Lenders and investors require financial forecasts to show your capacity to repay the loan.

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See more on (http://www.smallbusiness.wa.gov.au/cash-flow-forecast/)

 

furture Cash needed depends upon the total cash receipts less total cash payments. So Total cash  receipts   much depends on  cash colletion. and if  you ignore the collections while you forcasting your cash you are undermine the flow or movement  of cash.

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Cash flow forecasting with regards to collections on a weekly or monthly basis help to monitor the positive or negative variation in accordance with the forecast and enables to take corrective action in case of negative variation.
It also helps to plan the outflow of cash from the business to a certain extent as you have an estimate of the collections for a particular period of time in the future.