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4 min read

Cash forecasting - how to turn a vicious circle into a virtuous circle

As one of the most experienced cash forecasting software providers in the world, Nomentia has worked with Treasurers and senior finance professionals for decades to overcome the “cash forecasting challenge”. This very challenge is as highly relevant in today’s climate, as ever, for almost all of the Treasurers and Financial Directors we work with. Let’s take a closer look at one of the classic pain points our customers continue to face.  

We all know that the concept of cash flow forecasting is quite simple: you collect all possible data and information about cash going out and cash coming in from the people who are responsible for managing those cash flows. As a result, you get a reliable picture of your company’s liquidity. Perfect, sounds simple. In theory, yes….in practice, not so easy.

In practical, everyday terms, difficulties start to emerge when individual business units are not capable of providing accurate and timely forecasts. Sounds more familiar. But, on further reflection, does the buck really stop with business units? When we take a closer look at the problem it seems that people in business units are usually quite aware of money coming in and going out. Of course, it can be challenging to know when a client is going to pay an invoice, but in most cases, the person responsible for the accounts receivable still has a pretty good estimation, i.e. a forecast. So what’s the problem? 

Does everyone know what to do and why? 

The source of the “cash forecasting challenge” is more often found in the co-operation between treasury and individual business units. A lack of clear instructions and simple tools to perform day-to-day estimations are often the real deal-breakers. Do all the key people in your organisation understand the importance of financial risk management and cash flow forecasting? 

Any system, no matter how sophisticated, cannot automatically estimate when your client will make the payment. Even if you are lucky enough to have a fully integrated system that can pull data from a fragmented ERP environment, cash forecasting still requires a human touch. 

Don’t build systems, build bridges 

To successfully gather vital information from your various business units, you need the right tools. But you also need the right business partnering and understanding between the right people. Thus, considering a cash-forecasting project only as a systems project is simply setting everyone up for failure.

Don’t tie your IT department to a long and costly task if there is a risk that the business units can’t, or won’t, use the new system. Start your project instead by building a bridge between the business units and treasury. 

The most efficient way to fail with a cash forecasting project is to overlook the importance of working closely with the business units’  

Business units need to understand why their timely data and knowledge of client behaviour is so important in cash flow forecasting. Treasury needs to understand why business units act the way they do, and how they can be helped with improving forecasting accuracy. 

Building strong business partnerships requires mutual understanding, clear instruction and support. As with in all partnerships, co-operation must be mutually beneficial otherwise you’ll have a hard time getting a buy-in from stakeholders as well as getting the business units to work in synergy.

Be ready to:

  1. Take the necessary time to understand and learn the needs of your business units. How and where can the treasury help them?
  2. Explain the treasury’s needs in a digestible format that makes sense to the business units. Sell-it and skip the jargon! Your key partners are often cashiers or accountants who usually don't have expertise or know-how in treasury issues so help develop their understanding and appreciation around the need for accuracy and reliability. They too have limited work-bandwidth so take the time to explain the value their contribution brings to the core business
  3. Choose an easy-to-use tool, document a set of clear process instructions, preferably together with the business units themselves, deploy transparently and provide on-going support as and when required
  4. Provide feedback to the business units on the results of their forecasts. Recognise efficiency and provide direction where improvement is required

chart 1, virtuous circle of cash flow forecasting process

The virtuous circle of cash forecasting 

Deploying a cash-forecasting tool doesn’t have to be a time consuming and expensive systems project. Choose the right SaaS solution that can be ramped up and ready to go in a matter of weeks. Leave more time to work on internal bridge-building and strengthening business partnerships between stakeholders. Leave out stressful software projects and time consuming manual processes. 

Deploy an easy-to-use cash-forecasting tool, build solid internal relationships, provide clear and transparent process instruction and secure real buy-in from business unit leaders on the critical value-add of accurate cash forecasting. Make the cash forecasting process as easy and painless as possible for all concerned.