Trends and Technology

The Valuable Role of Predictive Analytics for Finance Leaders

August 31, 2021
The C2FO Team

The uncertainty of the pandemic has encouraged more companies to lean on precise data to protect and grow revenue. Here’s how predictive analytics can help achieve that.

For some finance teams, it’s enough of a battle to stay on top of current accounts receivable and accounts payable schedules. Just knowing what payments are in flight day-to-day and ensuring on-time processing can consume much of your time.

What if, instead of playing whack-a-mole with unexpected accounting snags, you had advance visibility into the most likely areas of risk and opportunity?

Predictive analytics is a discipline picking up speed in financial circles — giving financial leaders a powerful new tool for remaining agile and resilient in a shifting economy. At its core, predictive analytics is a category of data analytics aimed at making predictions about future outcomes based on historical data and analytics techniques, such as statistical modelling and machine learning. Such models assess a particular set of data points and conditions to produce fact-based insights that finance teams can use to guide more informed decision-making across various business use cases.

In short, predictive analytics draw from the high volumes of existing data sitting in your financial systems to answer the question, “What is likely to happen in the future?”

Financial vulnerabilities exposed

The impacts from last year’s pandemic reverberated across the business community. The sudden shift or altogether shutdown of workflows and employees moving to remote work set-ups overnight created unprecedented changes to how we work and do business. And it pulled back the curtain on those companies lacking a strategic plan to quickly adapt to the headwinds so that they could maintain some semblance of business as usual.

During the pandemic, savvy CFOs used advanced data analytics to cut costs, tighten cash management and safeguard supplies. The most successful leaders adopted advanced analytics that tracks external and internal risks based on a treasure trove of historical data. Those same leaders now have invaluable additional data collected throughout the pandemic’s dips and curves. This data will inform planning and forecasting to help these organisations prepare for and rebound quickly from future global events or market downturns.

Predicting risk and reward

Predictive analytics can offer insights to help you avoid risks to working capital, as well as help drive long-term financial process improvements. Here are some ways business leaders are making use of these data advances:

Forecasting revenue. Past behaviour is the best indicator of future experiences. Finance teams use historical supplier and customer data to reveal strategic insights, such as payment history and buying patterns. This allows for better quarterly forecasts and provides data-driven methods for maximising spend.

Identifying at-risk customers. Predictive analytics enables you to combine customer buying history and market trends to identify if certain accounts may be at risk. By analysing previous behaviour and outside factors, you can take proactive steps to protect commercial relationships.

Optimising supply chain relationships. Using predictive analytics to rank vendor risk lets you address supply chain inefficiencies before there’s a problem. If your company has experienced past instances of fraud, key data points can provide clear indicators of existing threats in need of your attention.

On the topic of privacy

Though advanced analytics technology opens the door to tremendous potential for risk mitigation and revenue growth, it also calls into question the importance of data privacy. As they say, “With great power comes great responsibility.”

It’s critical for data analytics efforts to follow clear ethical and regulatory guidelines. Most vendors and customers in today’s global economy understand their data and transaction histories are being mined for business value. But overstepping compliance standards or using predictive insights in questionable ways is a sure way to lose a valuable customer relationship quickly.

It’s important to note; we aren’t necessarily talking about mishandling, leaking or stealing data outright. Predictive insights mean the generation of new data — leading to the indirect discovery of potentially “off-limits” information. Organisations can predict these powerful insights from existing basic data points and may create new knowledge that goes beyond what can be ethically used for business purposes.

The quest for greater financial control

Regardless of an organisation’s size, all businesses want more control over their AP and AR processes and, ultimately, their cash flow. Predictive analytics offers finance leaders powerful technology that draws on the untapped value within massive volumes of data they already have.

If the past 18 months have taught businesses anything, it’s the chaos that comes from being blindsided by sudden changes in business processes and workflows. Adopting an approach to predictive analysis with the right technology can help ensure your organisation adequately prepares for major events. But it also can provide you with quick wins when it comes to protecting and growing revenue.

Sources: CIO.com, CFO Dive, Harvard Business Review

Working Capital. Working for Everyone.

C2FO provides working capital solutions for you, your suppliers and your customers.

Related Reading