Key takeaways
- Forecast categories are a key dimension of a cash flow forecast and are divided at the highest level into inflows and outflows.
- Headline groups and line items within these buckets should be tailored to the company's business model and forecasting objectives.
- The level of granularity should be decided from the outset, since too much detail can obscure the big picture.
- Unless transactions are automatically tagged, inflows and outflows must be categorized manually during ongoing data collection.
Introduction to forecast categories
Forecast or reporting categories are a key dimension of a cash flow forecast and help to shape its structure. At the highest level, these categories are divided into inflows and outflows. Within these buckets, the classification of categories (or headline groups) and their respective line items should be tailored to your company’s business model and main forecasting objectives.
For instance, if capital expenditure is a key area of focus, it could be displayed as a headline under outflows with more detailed line items beneath it.
The level of granularity required in your forecast should be considered from the outset. For example, some businesses may need to see inflows or outflows at the level of individual suppliers or customers. For other businesses, this level of detail could simply obscure the big picture.
Additionally, it’s worth bearing in mind that, unless transactions are automatically tagged and categorized for forecasting purposes, you will need to manually categorize inflows and outflows during data collection on an ongoing basis.
Examples of typical forecast categories
Customer inflows
Customer inflows (or customer receipts) are the primary revenue source in most cash forecasts, representing income generated by the core business. The level of detail under this category can vary based on the business model. For instance, companies selling uniform-price items may benefit from a breakdown of units sold by location or channel. In contrast, subscription-based businesses or those with high payment delay risks might structure this line item differently for greater insight.
Supplier payments
Supplier payments, which comprise a significant portion of accounts payable, are categorized based on company setup, data availability, and forecasting needs. For example, if supplier payments vary widely due to factors like asset prices (e.g., iron ore for construction or oil for logistics), grouping these by price-sensitive categories may help forecast trends in tandem with external price changes.
Payroll
Payroll often represents one of the largest and most predictable cash outflows, as salaries are usually consistent and paid at regular intervals. The level of payroll detail depends on forecasting requirements—breakdowns may be by role (e.g., executive, management, support) or by geography or business function, depending on which view best supports decision-making.
Capital expenditure (CapEx)
CapEx forecasting can be challenging, especially if timing depends on external factors outside the company’s control, such as the finalization of a corporate acquisition. How CapEx items are classified may depend on their frequency, with one-off expenses often placed under a "non-recurring" category.
Tax
Tax forecasting complexity depends on tax type, jurisdictions, and industry. A global beverage company, for example, might categorize taxes by geography to account for country-specific alcohol taxes, while a consultancy may categorize by tax type if it incurs various tax obligations based on project types.
Intercompany transactions
Intercompany cash movements can be complex to track and reconcile. Specialized software like CashAnalytics offers tools for automating intercompany reconciliations, ensuring that transfers net to zero. Without such tools, manual uploads should be carefully structured to reflect movements in both sending and receiving entities.
Debt and interest payments
Debt and interest payments are often one of the simpler elements to forecast and categorize, since corporate debt payments are typically negotiated with fixed terms, minimizing unexpected changes. These payments are generally categorized either by lender or debt type.
One-off items
Including a “one-off” category in the forecast helps manage non-regular expenses without creating new line items for each unique transaction. This allows clearer analysis by isolating such expenses and preventing the distortion of recurring trends. For each one-off item, it’s essential to include a note explaining what the item is and why it appears in the forecast.
Identify your cash flow data sources
A 13-week cash flow forecast relies on a variety of data sources, typically categorized as either actual or forecast data—although some sources may provide both. When setting up a forecast, one of the main goals should be to automate data inputs wherever possible.
Fully automated data collection is best achieved through a treasury system with forecasting capabilities linked to your ERP, allowing an automated flow of balance data and transactions into the forecast. This is usually done using either an Application Programming Interface (API) or Secure File Transfer Protocol (SFTP) connection that feeds source data into the forecasting model. To learn more, read our guide to bank and ERP connectivity.
Atlar integrates natively with ERP systems such as Oracle NetSuite and Microsoft Dynamics 365 for this very purpose—and connects to over 50 major banks, payment providers, and other financial systems. Browse our live integrations for the latest information.
How Atlar can help with forecast categorization
Atlar’s forecasting tool allows you to set up custom forecast categories and automatically tag transactions as Atlar receives them, mapping them to the appropriate forecast categories. Whether it’s different revenue types, customer receipts, payroll, or supplier payments, Atlar ensures every transaction is classified correctly according to your preferred reporting structure—streamlining the forecasting process and minimizing inaccuracies.
To see Atlar's cash flow forecast feature in action, book a 30-minute demo with our team.
