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Blog » Importance of Cash Reconciliation and Cash Forecasting for a Business!

Importance of Cash Reconciliation and Cash Forecasting for a Business!

Last updated: 10 Aug, 2023 By | 6 Minutes Read

Cash Reconciliation and Cash Forecasting

Cash reconciliation, and forecasting are the backbone of cash flow planning. Without precise cash forecast, businesses cannot plan their cash flow efficiently. On the other hand, cash reconciliation on a daily basis is essential for ensuring that enough cash is available in the accounts that are operational in order to cover the needs of the working capital.

As per the 2017 DP Information Group’s SME Development Survey, SMEs are facing a hard time dealing with cash flow shortages owing to the delayed payments by the customers.

1. Cash Reconciliation

Cash reconciliation is an activity where accountants of the company determine the cash movement in the business by reviewing company’s ledger. It is essential irrespective of the type of business and is the main concern for the financial institutions.

Cash reconciliation has become a lot difficult, owing to the increasing complexity of data and transaction volume. With new requirements and demands for compliance for enhanced insight within an organization, this task becomes even more challenging. It also comes into practice at the time of a new clerk joining as a cash registrar.

Importance of Cash Reconciliation

Enhanced Control

If business owners have to make the best decisions for their business, they need to have up to date and accurate financial information in place. However, this is not the case as a majority of owners use unreconciled bank statements during strategic decision-making.

This is a risky practice as it may lead to moving in the wrong direction. On the other hand, cash reconciliation enables them to create accurate, frequent cash flow forecasts, plan for the future, make important purchasing decisions, and more.

Get Hold of Fraudulent Activities

One of the significant purposes of cash reconciliation is to get hold of fraudulent activities if any. There can be incidents of cash theft, and the people responsible for the same can be thieves or anyone from your staff.

A business can lose the following on a fraud/year average:

As per the 2018 report of ACFE to the Nations Global Study on Fraud and Abuse, 5% of the gross revenue is lost because of fraud.

Another report by ACFE in 2018 to The Nations, small businesses, and private companies are at the top when it comes to occupational fraud frequency, which is 42% as compared to non-profits, government, and the corporations.

So, in order to make sure no such activity has taken place on your business premises, you need to perform cash reconciliation. Another important aspect of fraudulent activities is stealing cash as well as changing the receipts. So, make sure you have a proper security process in place, too, like using cameras.

Get Rid of Accounting Errors

Cash reconciliation will help in maintaining the account accuracy and eliminating any kind of bookkeeping error. If you perform this practice on a daily, weekly, and monthly basis, leaving no room for error. This is extremely crucial also as a single mistake in reconciliation and bookkeeping can cost a business a large sum of money, make strategies using the wrong financial data, and more.

2. Cash Forecasting

Cash forecasting refers to the financial predictions in the form of net cash flow in the future. In short, this prediction is about the amount of cash likely to go in the bank account and the amount of cash likely to go out of the bank account in the future.

A cash flow forecast helps businesses with the following:

  • Identification of possible shortcomings in cash balances. For instance, if negative cash flow is seen, businesses need to make sure they have enough facility of bank overdraft.
  • Knowing if the business’s trading performance (profits, revenues, and costs) transform into cash.
  • Assessing whether or not the business is moving towards its set objectives decided in the business plan.

Importance of Cash Forecasting

Lines of Credit and Loans

If you want to secure a line of credit or a loan that is backed by the government, the only way to achieve this is by cash forecasting, helping you deal with the cash flow problem during times of emergency. You will not only be able to assess your requirements for the loan but also get an idea as to when your income will be sufficient to meet the debt amount.

If you have a good credit score, your bank can help you by providing you with a revolving line of credit, which helps you gain drawing flexibility on the line of credit when needed.

Make More Informed Decisions & Reduce Risks

When it comes to one of the most effective tools to enable a futuristic view of the cash amount available at that time, the cash flow forecast clearly leads the pack. The information provided by this forecast helps in gaining insights into the important financial data and make decisions that eliminate risks at large and are aimed at enhancing profitability.

You can easily prepare a cash flow forecast with the help of cloud accounting software and simply use its template and make one in the spreadsheet.

Understanding the Possible Outcomes and Future Plans’ Impact

Irrespective of the business size you own, late payments can literally affect the cash flow in a negative way. However, understanding situations in advance with the help of cash flow forecasting helps in assessing the situations and arrive at possible solutions in order to avoid and address the same.

Future planning is all about assessing things in advance, and with a cash flow forecast, every possible financial situation is addressed in advance in order to make wise financial decisions.


This concludes the fact that cash reconciliation and cash forecasting are the two pillars on which businesses make informed decisions for future growth and profitability. It is imperative that accurate cash reconciliation is done on a regular basis to avoid any fraud or flaws in the accounting books. This paves the way for cash forecasting, which helps a business work on strategies to streamline the financial processes and aim for an enhanced ROI.

Are you looking for one of the leading outsourcing companies offering accounts reconciliation services? You’ve landed at the right place. Cogneesol with its highly trained and experienced staff and the latest accounting software provides businesses with secure and accurate reconciliation services. To know more, contact us at +1-646-688-2821 or write to [email protected].

Also Read:

What Kind of Errors to Avoid While Reconciling Bank Accounts?

Smart Tips to Streamline the Bank Account Reconciliation Process by Experts!