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.
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 will 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
- 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.
- Analyze the same period from the previous year, applying a multiplier based on any agency changes likely to impact the numbers.
- 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 use 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.
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, added Carrier appointments, commission rate changes, mergers, lead generation, etc.
Lastly, if the agency looks quite different than it did a year ago, the best estimate would be last month's cash flows or the average for the last three months.
Agency revenue received numbers can be obtained in several 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.