How does open banking make cash flow forecasting easier?

The short answer is that it saves you a lot of time.

Running a business without a cash flow forecast is like running in a dense forest with your eyes closed. But most small business owners don’t have any in-house finance experts who could handle it. Business owners have to do it themselves, in addition to 20+ of other duties.

So in reality, doing the forecasting the “old school way” ie manually building and updating a spreadsheet is not even an option – it takes several hours per week and business owners cannot afford that. Very often use of cash flow forecasting tools that offer the automation enabled by open banking (such as tailwindapp.eu) is the only realistic opportunity for them to be in control of their cash flows as it will take just 5-10 minutes per week.

What is “open banking”?

Open banking is broad term that describes regulations and technology solutions that allow you to: to:

1. Use third party applications to ask your bank to make payments from your account; and
2. Ask your bank to send data on your past bank transactions to third party apps.

The most common example of (a) is when you buy something online and choose the “pay from my bank account” option. The merchant then prepares a payment order (with beneficiary details and amount) and directs you to your bank. After you authenticate yourself, a pre-filled payment order is presented to you and you just have to approve it.

In contrast (b) means that you authorize your bank to send your transaction data to a third party app that you use. So instead of you downloading your bank account statement and manually entering the information it contains in this other app, the data will be sent automatically.

Is it legal?

Yes! In fact, we need to thank European Commission for making it not only possible but also mandatory in the European Union.

Legislation commonly known as PSD2 Directive https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32015L2366 was adopted in 2015 and made it mandatory for all banks in the EU to make the above scenarios (a) and (b) possible for their clients.

How does it help cash flow forecasting?

In order to be in control of your cash flows, you need to build a forecast and update it at least once a week if not more often. Open banking helps with both tasks and we will illustrate that with the examples from tailwindapp.eu cash flow forecasting app.

When you create your forecast from scratch and use a spreadsheet, you have at least two very boring and time consuming tasks:

• build the structure of the spreadsheet add and check all the formulas etc.; and
• enter all of your transactions

Open banking and tailwindapp.eu solve both of these.

Your forecast will be built for you

When you set up your account in tailwindapp.eu, you will be offered an option to enable automatic data import from your bank. Choose your bank and you will be taken to its’ internetbanking application. There you will authenticate yourself and provide consent to your bank to send your past transactions and account balances to your tailwindapp.eu account.

This will take just a couple of minutes and upon completing this step you will be offered an option to have your initial forecast created for you – without you lifting a finger!

Choose Mirror Last Month and your initial forecast will be generated. Tailwind will assume that the same transactions that happened during last 30 days will also repeat during next 30 days. If any of them are not going to repeat you can adjust or delete them with a couple of clicks.

Adjusting a good draft is always easier than creating something from scratch. And you don’t have to worry about any formulas, having enough rows or columns etc. You will see every day and every transaction plus will have lots of smart filters available to zoom in and out as needed.

Your forecast will update itself

There is no point in building a cash flow forecast unless you know you will be able to update it at least once a week. Forecasts become obsolete almost as soon as we finish them as they are based on assumptions and assumptions change. Not all of your clients pay when expected and maybe you delayed some payments as your suppliers didn’t deliver their services as expected.

 Some of your projects may take more or less time than planned to complete and get approved and invoiced. Scope of work in some projects might change or you will win new projects so you may need additional suppliers or staff etc. All of it impacts your cash flow.

If you use a spreadsheet, the first step in updating your forecast is incredibly boring and tedious. You have to log in to your internetbanking application and download your bank account statement or have it open on your screen. Update your cash balances at first. Then, start comparing the recent transactions with what you had in the forecast and mark whatever has been paid or received as such.

Open banking removes the need for all of that boring work as it makes it possible for third party applications to automatically receive your data every time you log in. So every time you log into your tailwindapp.eu account, your forecast and latest bank transactions will be automatically compared and whatever has been completed will be removed from the forecast.

Is it safe?

Yes! Past transactions and account balances are sensitive data a number of safeguards have been built into the PSD2 Directive including:

• Strong customer authentication: you need to properly authenticate yourself using the authentication tools your bank supports before you can give your bank the permission to send data to third party apps;
• Reconfirm every 90 days: to protect consumers, PSD2 requires them to reconfirm the permission they have given their bank every 90 days;
• Licensed account information services providers: only properly authorized service providers are allowed to integrate with banks and provide account information services to third party apps (Tailwindapp.eu uses services of GoCardless, a licensed account information services provider)

In addition, at tailwindapp.eu we have built additional safeguards including:

• Your data is for your eyes only – and this is where tailwindapp.eu is different from many other service providers. Open banking enables different use cases and some of them may involve you actually sharing your data with third party service providers (for example, when you apply for a loan and provide your data to help the lender calculate your credit score). It does not happen like that with tailwindapp.eu: all data is encrypted and neither our team nor any other third party can ever get access to any of the sensitive data on transactions and account balances.
• Information travels only in one direction, from banks to your tailwindapp.eu account. Tailwindapp.eu does not send any data back to your bank.
• Only secure  user identification: tailwindapp.eu does not allow you to generate your own username and password as these are more vulnerable to attacks from hackers. Instead, you can authenticate either with SMART ID or your Google account.
• Secure data centre: tailwindapp.eu uses Digital Ocean data centre provider and hosts the solution in its’ data centre in Frankfurt, Germany.

More on how Tailwind keeps your data safe: https://tailwindapp.eu/security

Conclusion

As a business owner, you need to be in control of your cash flows. And thanks to very smart “open banking regulation” from European Comission and tailwindapp.eu, you can achieve it by spending just 5-10 minutes per week!

Start your 30 day free trial here: https://app.tailwindapp.eu/sign-up