Methods to forecast agency cash flow for upcoming periods

In this article, we explore various methods that agents can employ to forecast their cash flow for upcoming periods, be it a month, quarter, or year. We delve into the advantages and disadvantages of each approach and subsequently outline strategies for obtaining the necessary data within Momentum AMS through reports and lists.

A common inquiry from clients is, "How can I forecast my cash flow for the next month/quarter/year?" Agents have several methods at their disposal to project cash flow, each with its own set of strengths and weaknesses. The most suitable approach depends on the specific period in question and certain characteristics of the agent's book, such as the billing method (Direct Bill vs. Agency Bill) and commission payment details from carriers and MGAs (payment dates and whether it's in full or as-earned). Naturally, the accuracy of the forecast increases with a shorter time frame, making it easier to predict cash flow for the upcoming month compared to a year ahead.

"How can I forecast my cash flow for the next month/quarter/year?"

Here's a concise overview of a few methods for addressing cash flow forecasting questions:

Here's a concise overview of a few methods for addressing cash flow forecasting questions

1. Examine the production report for the month, detailing new business, renewals, and endorsements written in the current month for which commission statements (and payments) will be received next month.
2. Analyze the same period from the previous year, applying a multiplier based on any agency changes likely to impact the numbers.
3. Calculate the average of the last three similar periods (months, quarters, etc.).

We'll now briefly discuss the advantages and disadvantages of each method before delving into the corresponding Momentum AMS reports for implementation.

If your book consists primarily of direct bill policies and your carriers pay in full (not monthly), then Approach #1, examining the production report for the month will give you an excellent idea of what your commission inflows will be for next month. This obviously only works for next month. You cannot use this approach for any other future period. The Production and Revenue by Endorsement report in Momentum AMS is the best report for this purpose. You can use the filters for Endorsement Effective date and Endorsement Entered date to select the relevant records.

book consists primarily of direct bill policies Production and Revenue by Endorsement

The one problem with this report is that the agency commission may not have been generated yet. Many agencies do not add commission rules for carriers that provide Direct Bill commission statements through Ivans downloads OR for which the agency imports commission statements from CSV files. In such cases, one could possibly use the report: Agency Commission Based on Rule. Of course, this report also relies on commission rules. The agency could set the commission rules even for carriers that download commissions. They just need to check the box "do not use in downloads".

Agency Commission Based on Rule

For pure forecasting purposes, the best approach is to look at the cash flows for the same period a year ago. Take that number and apply a multiplier based on any factors that may affect upwards or downwards. This will work well if the agency has not undergone major personnel changes, Carrier appointments, commission rates, mergers, lead generation, etc.

pure forecasting purposes

Lastly, if the agency looks quite different than it did a year ago, then the best estimate would be last month's cash flows or the average of cash flows for the last three months.

Agency revenue received numbers can be obtained in a number of reports. My favorite report is Revenue Policy Amount - Section #3 - Agency Commission Received (by period).

We hope this helps! If you have any questions or concerns please email us at help@nowcerts.com.