About Driver-Based Forecasting Methods

Process for Working with Driver-Based Forecasting Methods

Set up the assumptions (such as pay terms, due dates, and so on) by entity, line item, and other custom dimensions.
Load or input the data used to drive the cash forecast.

For DSO and DPO, load or input the average DSO or DPO and the outstanding revenue or expense to drive the cash forecast.
Run the daily Daily Process Forecast / Periodic Process Forecast, which calculates the cash flows.
When you load or save the cash inflow or cash outflow driver form, Predictive Cash Forecasting calculates the cash inflows or outflows based on the driver amount and driver assumptions, and posts them into the appropriate periods.

For DSO and DPO, Predictive Cash Forecasting calculates the cash flows based on the Average DSO or DPO and outstanding revenue or expense.
The cash inflow or outflow is automatically populated in the Rolling Forecast form.

Cash Inflow Drivers

Revenue Receipts— Drive cash inflow from product or service revenue using pay terms, for example, revenue from retail stores in retail might have a fixed pattern of 70% cash received in three days and 30% cash received in five days.
Project Receipts— Drive cash inflow from projects revenue, milestone dates, and pay terms. For example, cash receipts from contracts or IT projects is driven by milestones and pay terms. Useful for project-based contract companies.
Days Sales Outstanding (DSO) - Receipts—Drive cash inflow considering the average Days Outstanding on the Revenue, at the party or entity level. Useful when pay terms are very dynamic.

Cash Outflow Drivers

Expense Payments—Drive cash outflow considering the expense and the pay terms. For example, for some Operational expenses such as travel and utilities, cash outflows can be determined based on a regular pay term.
Fixed Asset Payments—Drive cash outflow considering the fixed asset spends and pay terms. Fixed assets payments are determined based on pay terms, which can be set by asset class. Data for fixed asset payments could come from the Planning Capital module or other source.
Recurring Payments—Drive cash outflow for ongoing expenses that have payments on a recurring basis, such as lease or rental payments.
Salary Payments—Drive cash outflow for salary and payroll-related payments based on salary expenses, salary basis, and timing of the pay-outs, such as annually, monthly, or weekly, and salary incidence such as beginning of period, end of period, bi-monthly, or a specific due date. Data for salary payments could come from the Planning Workforce module or a payroll system.
Project Payments—Drive cash outflow from project expenses and pay terms. Project expense cash outflow for material, labor, or other project related costs can be modeled based on milestones and pay terms. Data for project payments could come from the Planning Projects module or other source.
Direct Tax Payments—Drive cash outflow for direct tax payments based on tax liability, installment percentage, and due dates. Used for any direct tax payment, for example to government or regulators.
Indirect Tax Payments—Drive cash outflow for indirect tax payments based on tax liability and pay terms. For example, indirect tax payments such as GST or Sales Tax that are payable to regulatory agencies.
Days Payables Outstanding (DPO) - Payments—Drive cash outflow considering the average days outstanding on the expense, typically by supplier or at the entity level. Useful when pay terms are very dynamic.

Revenue Receipts (Based on Revenue and Pay Terms)

Description

Drive cash inflow from product or service revenue using pay terms.

Use the Revenue Receipts driver method when product or service revenue is based on pay terms, for example, retail customers and direct channel customers. Typically overall stores revenue has a set pattern of receipts that you can model using this method. You can also use this if you want to drive your cash forecast based on direct revenue coming from ERP or Planning and a specified pay term.

You can use this driver method for line items in the Revenue Receipts category, where you can add line items such as product revenue receipts or service revenue receipts.

Example

Revenue from retail stores in retail might have a fixed pattern of 70% cash received in three days and 30% cash received in five days.

Drivers

Specify for entity and line items. Additional custom dimensions can be considered if they are enabled.

Pay Terms

Percentage—Percentage expected for each pay term
Due Period—Payment days, weeks, months

Driver Input

Product or service revenue or other customer-defined line items.

Driver inputs can be extracted from source systems such as a POS system or ERP, loaded through a .csv file, brought in from Planning, or you can manually enter them on the Driver Assumptions form.

Once the driver inputs are loaded, Cash Managers can see them reflected in the Assumptions form, and can make manual adjustments to driver inputs based on their best judgment and experience for the line item.

Calculation Logic

Based on payment term assumptions, including percentage input and due period, Predictive Cash Forecasting calculates the cash inflow amount considering the revenue amount. It calculates the cash inflow if the due period falls within the cash forecast period range and it posts the inflow amount in the respective periods based on the assumptions entered for percentage and due period.

Project Receipts (Based on Project Revenue, Milestones, and Pay Terms)

Description

Drive cash inflow from projects revenue, milestone dates, and pay terms, and calculate the milestone amounts based on contract value. This method is useful for project-based contract companies, engineering and construction companies, real estate companies, and project-based consulting service companies.

Example

Revenue (cash receipts) from contracts or IT projects driven by milestones and pay terms.

Drivers

Specify at the entity, project, line item level. Additional custom dimensions can be considered if they are enabled.

Milestones for the project

Percentage—Percent completion
Due Date

Pay Terms for the project

Percentage
Due Period

Driver Input

Project revenue by project.

Driver inputs can be extracted from systems such as the ERP Project Management module, the Planning Projects module, or can be loaded through a .csv file.

Once the driver inputs are loaded, Cash Managers can see them reflected in the Assumptions form, and can make manual adjustments to driver inputs based on their best judgment and experience for the line item.

Calculation Logic

Cash flow is calculated by applying the pay term on the milestone amount for the project. Milestone amounts are derived from the milestone percentage for each project. The drivers are captured by project and the cash flow is calculated on the project.

Predictive Cash Forecasting calculates the project milestone amount based on total contract amount * the milestone percentage and populates the result in the respective milestone day/ periods. Once the milestones are derived in respective periods, Predictive Cash Forecasting applies the pay terms logic on the milestones to calculate the cash inflow amount and populates it in the respective day or period of the cash forecast. In case the due date or due period falls outside the cash forecasting period range, Predictive Cash Forecasting does not post that milestone / cash inflow amount.

Days Sales Outstanding (DSO) Receipts (Based on Average DSO and Outstanding Receivables)

Description

Drive cash inflow considering the average days outstanding on the revenue at the party or entity level. This method is useful when pay terms are very dynamic.

Days sales outstanding (DSO) is a driver measure of the average number of days that it takes a company to collect payment for a sale. DSO is often determined on a monthly, quarterly, or annual basis. Based on the DSO driver, Predictive Cash Forecasting determines the cash inflow by applying it to the Outstanding Revenue.

This method can be useful for customers who want to forecast cash when they don’t have corresponding source data yet, especially for periods further out in the cash forecast.

Example

You can use DSO when pay terms are very dynamic, for example, for revenue line items such as revenue not yet booked, or future projected revenue, such as indirect channel revenue cash inflow.

Drivers

Average DSO

Assumptions, average across year
Period buckets, average for the period

Driver Input

Adjusted DSO days can be used as driver input for calculating the cash inflow in the forecast, and can be loaded or input either at the Entity level or based on the dimension (for example, Party) that this method is applicable for. DSO can be loaded as an overall assumption or by period. Additionally, Outstanding Revenue is available as the driver. Outstanding Revenue is usually the opening Accounts Receivable + Credit Sales for the period.

Calculation Logic

Cash inflow is calculated based on the Outstanding Revenue (future revenue) and the Average DSO. Predictive Cash Forecasting considers the appropriate periods' average DSO or it takes the overall assumption. The cash inflow is determined based on the Average DSO applied on the driver input amount and posted to the period based on the number of DSO days.

Expense Payments (Based on Expense and Pay Terms)

Description

Drive cash outflow considering the expense and the pay terms. This driver method is applicable for operating cash outflow line items such as labor payments, travel payments, or hotel payments. This driver method is used to derive the cash outflows based on standard pay terms for that expense applied on the expense.

Example

For example, cash outflows for some operational expenses such as travel and utilities can be determined based on a regular pay term.

Drivers

Specify at the entity, line item level.

Pay Terms

Percentage—Percentage expected for each pay term
Due Period—payment days, weeks, or months

Driver Input

Any expenses such as travel, hotel, or utilities.

You can extract driver inputs from various sources such as the Planning Financials module, ERP, or you can load purchase orders through a .csv file.

Once the driver inputs are loaded, Cash Managers can see them reflected in the Assumptions form, and can make manual adjustments to driver inputs based on their best judgment and experience for the line item.

Calculation Logic

Predictive Cash Forecasting calculates the cash outflow amount based on the pay term assumptions. There can be multiple pay terms for certain expenses. Predictive Cash Forecasting calculates the cashout flow amount considering the expense amount (driver input) * percentage input for each pay term. The calculated amount is then posted in the respective day or period as per the due period defined in the pay terms assumptions. If there are multiple pay terms, Predictive Cash Forecasting posts the outflow in the respective pay term and period according to the driver assumptions.

Fixed Asset Payments (Based on Fixed Asset Spends and Pay Terms)

Description

Drive cash outflow considering the fixed asset spends and pay terms. Fixed asset payments are determined based on pay terms that can be set by asset class.

The Fixed Asset Payments driver method is applicable for capital payments (fixed assets payments) line items in the cash forecast.

Cash outflow from this method writes into Cash from Investing Activities, as opposed to Cash from Operating Activities.

Example

This driver method can be used by companies where they are fixed asset purchases booked in the Payables Fixed Assets module and the supplier payment happens on a periodic basis based on pay terms with the asset supplier.

Drivers

Pay Terms:

Specify at the entity, capital payments line item level. Additional custom dimensions, such as Party, Asset Class or Project, can be considered if they are enabled.

Percentage—Percentage expected for each pay term
Due Period—payment days, weeks, or months

Driver Input

Fixed Asset Spends.

Driver inputs can be extracted from the Planning Capital module or other source, such as the ERP Order module, or can be loaded through a .csv file.

Once the driver inputs are loaded, Cash Managers can see them reflected in the Assumptions form, and can make manual adjustments to driver inputs based on their best judgment and experience for the line item.

Calculation Logic

Cash outflow is calculated by applying the pay term percentage on the driver input and posting the cash outflow to the period buckets based on the due date.

Predictive Cash Forecasting calculates the cash out flow amount considering the Fixed Assets spends (the driver input) * percentage input for each pay term. The calculated cash outflow amount is then posted in the respective day or period as per the due period defined in the pay terms assumption form.

In case the due date or due period falls outside the cash forecasting period range, Predictive Cash Forecasting does not post that cash outflow amount. If there are multiple pay terms, Predictive Cash Forecasting posts the outflow in the respective pay term and period according to the driver assumptions.

Recurring Payments (Based on Recurring Pay Terms)

Description

Drive cash outflow for ongoing expenses that have payments on a recurring basis, such as lease or rental payments.

Example

The Recurring Payments driver method is applicable for recurring expense line items such as Lease or Rent payments or Insurance payments. This driver method can be used by companies for recurring expenses that are paid to suppliers on a contracted periodic basis.

Drivers

Specify at the entity, line item level.

Pay Basis—Annual, Monthly, or Weekly
Pay Period—The starting period from when recurring payments should begin
Recurring Frequency—The recurring frequency, for example, every pay cycle or every 3 pay cycles
Number of Occurrences—The number of recurring payments to be posted

Driver Input

Any expense that has a recurring pattern.

Driver inputs can be extracted from the Planning Financials or Capital module or other source, such as ERP Expense Management, Lease, GL, or can be loaded through a .csv file.

Once the driver inputs are loaded, Cash Managers can see them reflected in the Assumptions form, and can make manual adjustments to driver inputs based on their best judgment and experience for the line item.

Calculation Logic

Cash outflow is calculated based on the recurring schedule that is defined by the assumptions applied to the driver input amount and posted in respective days or weeks.

Salary Payments (Based on Payment Basis and Pay Terms)

Description

Drive cash outflow for all employee-related payments such as salary and other payroll-related payments based on salary expenses, salary basis, and timing of the pay-outs, such as annually, monthly, or weekly, and salary incidence such as beginning of period, end of period, bi-monthly, or a specific due date.

Example

The Salary Payments driver method is applicable for periodic salary and benefit expenses line items and other related expenses such as Earnings and Variable Payments, or other periodic fixed expenses.

Drivers

Specify at the entity, line item level. Additional custom dimensions can be considered if they are enabled.

Salary Basis—Annual, Monthly
Salary Incidence—Drives when the cash flow occurs (Begin Period, End Period, Semi-monthly, or Biweekly)
Annual Payment Due Date—For annual payments, the salary due date
Pay Terms—Optional. If the payment is in multiple payments, defined by the percentage and due periods

Driver Input

Salary or related expenses.

Data for salary payments could come from the Planning Workforce module, a payroll or other source system, or can be loaded through a .csv file.

Once the driver inputs are loaded, Cash Managers can see them reflected in the Assumptions form, and can make manual adjustments to driver inputs based on their best judgment and experience for the line item.

Calculation Logic

Cash outflow is calculated based on salary basis and posted to respective periods based on salary incidence, due date, and pay terms.

The driver input can be provided as an assumption, in which case it is divided by the number of periods and posted to the appropriate periods. Or, the driver input can be loaded into period buckets, in which case the amount for each period is considered.

The salary basis and payment due date determines the cash outflow posting date or period for the salary and earnings expenses. If the salary basis is monthly, Predictive Cash Forecasting divides the annual salary amount by 12 and posts it to the last date of the given month.

In weekly model, Predictive Cash Forecasting posts the salary and earnings amount to the last day of corresponding week. If pay terms are defined for salary and earnings line items, Predictive Cash Forecasting calculates the cash outflow based on the percentage input and the due period for each pay term.

There could be annual expenses such as variable compensation that are an annual payout. In this case, Predictive Cash Forecasting posts the entire amount to the corresponding date based on the defined due date or the period where the date falls into. If the middle of the year salary assumption is changed, Predictive Cash Forecasting reforecasts only for the open periods in the rolling forecast (periods after current period).

Project Payments (Based on Project Expense, Milestones and Pay Terms)

Description

Drive cash outflow from project expenses and pay terms. Project expense cash outflow for material, labor, or other project related costs can be modeled based on milestones and pay terms.

Example

Project expense cash outflow for material, labor, or other project-related costs.

Drivers

Specify at the entity, project, line item level.

Milestones—Percentage, Due Date
Pay Terms—Percentage, Due Period

Driver Input

Project Expense by Project.

Data for project payments could come from the Planning Projects module or other source, such as the ERP Projects module, or can be loaded through a .csv file.

Once the driver inputs are loaded, Cash Managers can see them reflected in the Assumptions form, and can make manual adjustments to driver inputs based on their best judgment and experience for the line item.

Calculation Logic

Cash flow is calculated applying the pay term on the milestone amount for the project. Milestone amounts are derived on milestone percentage for each project. The drivers are captured by project and the cash flow is calculated on the project.

Predictive Cash Forecasting calculates the project milestone amount based on project expense * milestone percentage based on completion of work and populates the result in the respective milestone days or periods. Based on the milestone amount, Predictive Cash Forecasting then applies pay terms logic on each milestone amount to calculate the cash outflow amount and populates it in the respective day or period of the cash forecast.

There can be multiple pay terms for the project. Predictive Cash Forecasting calculates the cash outflow amount considering the project amount per milestone * percentage input for each pay term. The calculated cash out flow amount is then posted in the respective period according to the due period driver defined in the assumptions.

Direct Tax Payments (Based On Tax Installment and Tax amounts)

Description

Drive cash outflow for direct tax payments based on tax liability, installment percentage, and due dates. Used for any direct tax payment, for example to government or regulators.

The Direct Tax Payments driver method is applicable for the Annual Direct Tax line item in the cash forecast. This driver method can be used by companies that have to pay direct taxes such as income tax, property tax, taxes on assets, and so on as per the due date on a periodic basis based on local laws or statutory compliance.

Example

Direct Tax payments to different regulatory or government agencies based on due dates as per the local government statutory laws and tax compliance regulations.

Drivers

Specify at the entity, annual direct tax line item level.

Tax Installments for every fiscal year—Percentage and Due Date.

Driver Input

Tax Liability value.

If there are multiple tax installments during the year, the percentage and due date driver input should be available for each tax installment.

The driver inputs can be extracted from Tax Reporting, ERP GL, or can be loaded through a .csv file.

Once the driver inputs are loaded, Cash Managers can see them reflected in the Assumptions form, and can make manual adjustments to driver inputs based on their best judgment and experience for the line item.

Calculation Logic

Cash outflow is calculated based on the annual tax liability and the installment percentage and due dates. The annual tax is cumulative and any change in the annual tax amount is adjusted for considering the incremental / decreased amount posted in the future installments

YTD Annual Direct Taxes Liability are loaded to all the periods. Predictive Cash Forecasting calculates the tax installments based on the following rules:

Taxes are calculated based on the percentage input according to the due date assumption for the first installment.
The second installment is applied on the latest tax liability. However, if there is a change in the tax liability, Predictive Cash Forecasting calculates the overall tax liability to date by summing the installment percentages, subtracts the previous tax paid, and then posts the remaining tax amount.
The same approach is applied to all of the remaining tax installments.

Indirect Tax Payments (Based on Tax Basis, Due Dates and Pay Terms)

Description

Drive cash outflow for indirect tax payments based on tax liability and pay terms.

The Indirect Tax Payments driver method can be used by customers for all indirect tax payments where cash outflow occurs based on due dates as per the government statutory laws and indirect tax compliance regulations.

The Indirect Tax Payments driver method is applicable for the Indirect Tax payments line item.

Example

Indirect tax payments such as GST, Sales Tax, or other Annual Indirect taxes that are payable to regulatory agencies. This driver method can be used by companies that have to pay indirect taxes such as sales tax, excise taxes, value added taxes, and so on as per the due date on a periodic basis based on statutory compliance.

Drivers

Tax Basis—Annual, Monthly
Indirect Taxes Due Date—Mainly for annual taxes
Pay Terms—Percentage and due Period

Driver Input

Indirect tax liability value.

The indirect tax liability value can be loaded from the Planning Financials module, ERP system, or can be loaded through a .csv file.

If there are multiple tax installments during the year, the percentage and due date driver input should be available for each tax installment.

Once the driver inputs are loaded, Cash Managers can see them reflected in the Assumptions form, and can make manual adjustments to driver inputs based on their best judgment and experience for the line item.

Calculation Logic

Cash outflow is calculated based on the indirect tax liability, tax basis, payment incidence (to be paid in same period or next period), and payment terms based on tax liability value. The driver input is usually recorded in respective periods and that is taken and cash flow is calculated based on this.

Indirect taxes are calculated as follows.

If the Tax Basis is Annual and the payment incidence is the same period, the Annual Tax amount is posted on the due date.
If the Tax Basis is Annual and the payment incidence is the next period, the Annual Tax amount is posted on the next day of the due date.
If the Tax Basis is Annual and the payment incidence is same period and Pay Terms are defined, the Annual Tax amount is posted on the due date and pay terms are applied from the due date.
If the Tax Basis is Annual and the payment incidence is next period and Pay Terms are defined, the Annual Tax amount is posted on the next day of the due date and pay terms are applied from the next day of the due date.
If the Tax Basis is Monthly and the payment incidence is the same period and the amount is loaded on a given date, pay terms are applied from the loaded date.
If the Tax Basis is Monthly and the payment incidence is the next period and the amount loaded is on a given date, pay terms are applied from the next day of the loaded date.

DPO Payments (Based on Average DPO and Payables)

Description

Drive cash outflow considering the average days outstanding on the expense, typically by supplier or at the entity level. This method is useful when pay terms are very dynamic.

Days payable outstanding (DPO) is a financial ratio that indicates the average time (in days) that a company takes to pay its bills and invoices to its trade creditors, which can include suppliers, vendors, or financiers. The ratio is typically calculated on a quarterly or annual basis, and indicates how well the company’s cash outflows are being managed. Based on the calculated DPO days driver, Predictive Cash Forecasting posts the expense amount in the corresponding day or period based on periodicity.

You can adjust the DPO driver input and based on the adjusted DPO days and outstanding expense, Predictive Cash Forecasting calculates the cash outflow and posts the amount in the corresponding day or period.

Example

You can use this method for line items in the cash forecast where smart driver logic cannot be applied, when pay terms are very dynamic, such as consumables. You can also use this method for future periods that are beyond what is captured through invoices.

Drivers

Average DPO

Assumptions—Average across the year
Period buckets—Average for the period

Driver Input

Expense or any line item. The calculated DPO days.

You can load calculated DPO days from ERP as a starting point. Cash Managers can adjust the calculated DPO days based on experience. Adjusted DPO days are used as driver input for calculating the cash outflow in the forecast.

Calculation Logic

Cash flow is calculated applying the average DPO for the period on the period expense or it by applying the average DPO across the year if the DPO by period does not exist.

Cash outflow is calculated based on the Outstanding Expense and the Average DPO. Predictive Cash Forecasting considers the appropriate periods average DPO or it uses the overall assumption. The cash outflow is determined based on the Average DPO applied on the driver input amount and posted to the period based on the number DSO days.