Cash Flow Forecasting for Retail Group

Solution
Cash Flow Forecasting

Industry
Retail Group

Location
Europe

A retail group that is based in France and operating globally, with a significant presence in Belgium, Portugal and Poland. It comprises 9 store brands in different retail segments with about 4,000 retail points.

The retail group was searching for a tool that provided them with precise forecasts about its daily financial balance situation, in particular, to have visibility of its cash surplus or deficit. Before the solution, the cash flow predictions were performed manually for each day and updated weekly. There was a need for both improving forecast accuracy and automating the process.

DecisionBrain provided a solution by developing a prediction engine for all of the Group’s financial incoming and outgoing cash flows, forecasting the daily cash flows for the next 3 months. A “supervised learning” approach was used, consisting of creating a machine learning model based on historical data and applying it to predicting the future flows.

The solution consisted of:

• Identifying groups of flows with similar rules. The more granular a flow grouping is, the more precise the results. However, higher granularity implies more Machine Learning exercise and time to tune and maintain the models. The original grouping of flows into 56 groups was further aggregated to 10 groups.
• Identifying features and rules to predict the flows, like, for example, day of the week or day of the month
• Selecting the training period, that is the period of historical data used to create the model.
• Investigating data outliers. This consists of either assigning a new feature, excluding it from the model, or creating a separate machine learning model. For example, confronting the COVID-19 and post-COVID-19 period, which required additional reactive tuning.
• Finding an appropriate machine learning algorithm, which provides the lowest error.
• Running the tests and comparing the model results to the manual results, in terms of mean absolute error divided by the mean value of real data where the mean absolute error is the average absolute difference between prediction and real values.

The main objective of DecisionBrain’s solution was to improve manual predictions. After a live test that ran for 4 weeks, it was proven that model predictions were consistently and sizeably better than manual prediction both on aggregate and at flow group level.