Technology Summary

The research team has developed a stochastic financial analytics (SFA) tool that has been found to provide accurate cash flow forecast while being computationally efficient in tests based on two subject matter experts (SMEs). As the stochastic dynamics of cash flow evolves every day, the forecast can be updated every time an invoice is paid. The proposed model has been back-tested using empirical data from small manufacturing firms and found the forecast accuracy to be considerably superior to other techniques commonly used. Furthermore, in computer simulation experiments, the proposed model is found to be largely robust to supply chain dynamics, including when subjected to severe bullwhip effect. The proposed model has been implemented in Excel, which allows it to be easily integrated with the accounts receivable aging data, making it practicable for small and large firms.