FORECASTING

Cash forecasting in (really) turbulent times

Jun 22, 2020 11:59:08 AM
Karl-Henrik Sundberg

Originally published on treasury-management.com.

Cash forecasting in (really) turbulent times

It seems like a lifetime ago, that I worked on our whitepaper about ‘Modern Cash Forecasting’. Back then I remember we used the subheading ‘Cash Forecasting in Turbulent Times’. Little did I know how turbulent times would become just a few months down the road.

Now, it’s June 2020 and the world as we know it has changed, we don’t know exactly in what way but we do know for sure that it will in some shape leave a lasting impact. I wonder if those of us who work in treasury and cash will look back at this time as the period where suddenly they were needed more than ever.

Often, Treasury is a function that isn’t getting broad recognition in the organization, unless there is trouble. And by trouble I mean there is a high demand for cash and liquidity isn’t a given anymore. Now, it is more important than ever (and let’s be honest, it’s always important), to have a clear visibility of your organization's global cash position, the current one and the future one.

I would like to take a moment to share my five tips for cash forecasting excellence with you. Let’s take the learnings we can and make sure we set our systems and processes up to support us in the most optimal way.

Cash visibility is the foundation

I would highly recommend that before you start focusing on the forecasts, make sure you have clear visibility of where you are today in terms of your cash positions. This means you need to ensure you have an accurate and updated view of your group’s cash balances. And this statement brings us right away to your bank account landscape. How many banks are in scope? Where are your pooling structures and your stand-alone accounts? How to centralize the incoming bank account statements in the most cost-efficient way? These are great questions to start your journey towards cash visibility and forecasting excellence.

Focus your forecast on parameters that matter to your business

Now you have a clear view of your cash balance and it’s time to start forecasting. There are so many different levels and dimensions this can be done. In my work with our customers (but admittedly also working in the field myself) I have seen that it’s easy to get carried away by the sheer amount of possibilities. I recommend that in the beginning, you narrow down what you want to measure based on what matters for your liquidity planning and what’s the goal of your forecasting. We all know the old adage ‘Keep it simple’, let’s apply it here.

Connect your different data sources into one place and automate data collection

You are all ready to go. You have a clear visibility of your cash balance and you have narrowed down what you want to report and analyze. Now it’s time to get the data. I’d recommend connecting all your source systems into one place in an automated way. Your work is not about collecting data, it’s about analyzing it. Let’s make sure we can focus on that.

Visualize your data into reports and focus on analyzing the findings

After you have collected everything you need it’s time for the actual fun part of working in the treasury. Analyzing the data, that’s what we came here for right? In order to do that, make sure you visualize your data in ways that work for you. But also don’t forget the internal effect. You are likely working with different stakeholders who might benefit from understanding the data you are analyzing, visualizing it in an easily digestible and shareable way that will work across functions. This will also help you to communicate about different trends you see in the data for example.

Check your accuracy and improve your forecast continously

This last one is I think what distinguishes a great cash forecasting from an excellent one. It’s the notion of not settling with the current status, it’s about always looking for ways to improve. It’s important that you continuously follow up on the accuracy of your forecasts and take a close look at the differences between forecast and actuals. Otherwise, your forecasts remain just lofty pipe dreams that are not able to be used in an impactful way to support your strategic business goals. In most cases, getting the actuals from the bank statements is good enough. But please bear in mind, if you want to go Pro there are solutions out there that support multiple sets of actual-material, such as the cash and bank postings in your ERP. This will enable you to drill-down into the fine details and sometimes this is just the detail where you will find the devil.

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Karl-Henrik Sundberg

Karl-Henrik has a background from CM in Transaction Banking followed by 6 years as head of Cash Management at a Corporate Treasury. As Solution Manager at in Nomentia he is involved in sales, RFPs, product demos and product development of the next generation Cash Management modules.