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5 min read

Five expensive myths in Cash Forecasting

1. Cash forecasting should be tied to an ERP Project 


Large corporations tend to think they should complete a wide-ranging ERP project before it’s worth considering developing cash forecasting. Sure, a single source to collect all or most of the required information makes cash forecasting easier. Nevertheless, an ERP project is a lousy excuse not to develop cash forecasting right now. 

ERP initiatives can often take years and the requirements for cash forecasting are rarely a high priority. If you neglect developing cash forecasting during this time, you can be sure your company loses massive amounts of money. 

"ERP initiatives can often take years and the requirements for cash forecasting are rarely a high priority" 

This myth originated from the difficulty experienced with historical system integrations, which required the participation of already over-burdened IT departments. 

Nowadays, the situation is very different. If you use a modern, cloud-based cash flow forecasting solution, you can build integrations to dozens of systems (if required), easily and on your own. 


2. Cash forecasting is not worth doing unless it’s accurate 


Some companies neglect to develop cash forecasting by claiming that, in their line of business, accurate forecasts are impossible to configure. Reasons include: 

  • Subsidiaries are not able to forecast their own cash flows
  • Incoming payments cannot be forecasted as customers never pay on time
  • Outgoing payments cannot be forecasted as the invoices are stuck in the approvals cycle

These are all factors to be considered when developing cash forecasting. 

Subsidiaries will get better at forecasting with good working instruction and understanding why reliable cash forecasting is important for the company. 

With incoming and outgoing payments it should be taken into account that the information from AP and AR systems is not always reliable. 

Even a small improvement in cash forecasting can save significant sums for your company. 


3. Developing cash forecasting is an IT Project 


This is directly related to the ERP myth at the top of this list (Myth 1: Cash forecasting should be tied to an ERP Project). Companies have developed a misguided notion that all initiatives with a software component must be IT led projects. Because of this, many consider the procurement and deployment of a simple system, such as cash forecasting, an IT project. Wrong on two counts:

First of all, the application itself is just a small part in the development of a reliable cash forecast. It is much more important to create internal processes and preparedness to develop a reliable cash forecast including; creating a project plan, selling the project to senior management, business stakeholder, subsidiaries etc. and providing your subsidiaries with clear and transparent instruction. 

You don’t need to involve your IT department to start using a modern cloud solution. 

Secondly, cloud services have changed the software market beyond recognition. Modern SaaS (or cloud, if you will) applications are highly scalable and their deployment and integration into other systems is so easy you can do it all without involving your IT department.


4. Excel is a cash forecasting tool 


Some companies believe that using Excel for cash forecasting saves them money. While it may be true that using Excel saves on software license costs, you should consider the resource cost of all the manual work  involved in using spreadsheets. When you consider this, you’ll discover Excel cannot compete with modern cloud applications, even on price. 

Flexibility is often considered an Excel strong point. Almost any professional can use Excel and it’s easy to create your very own formulas. But, if you look closer at the flexibility and accuracy offered with spreadsheets across a range of situations, Excel falls woefully short as integration to external systems is challenging. Automatic updating of account balances and AP/AR information is simply not going to work effectively and reliably with Excel. 

"After the clever intern, who developed the nifty macros and formulas, is no longer around……nobody knows how the application generates the numbers." 

Changes and updates made to Excel spreadsheets typically remain undocumented. After the clever intern, who developed the nifty macros and formulas, is no longer around……nobody knows how the application generates the numbers. 

In its defence, Excel is an excellent tool, which can be comfortably used with a cash forecasting solution. By transferring information from your cash forecast to Excel, you can utilize formulas and macros to create dazzling management reports. 


5. Cash forecasting should be part of a TMS 


Some larger companies, with a dedicated treasury function, believe cash forecasting is a part of their TMS (treasury management system). This misconception can be due, in part, to the treasury in question not having the benefit of experience and expertise with alternative software options and their procurement. 

In addition to the above, treasury departments may also incorrectly assume a  ‘one-stop-shop’ approach to remaining with one treasury vendor to allow them a better cash forecasting solution at a better price i.e. best to acquire their cash forecasting system from their current TMS vendor. 

However, a TMS rarely offers the best alternative for developing cash forecasting. A TMS does include cash flows tied to financing instruments but their forecastability is not an issue as they will certainly be realized on due dates. 

"A TMS does include cash flows tied to financing instruments but their forecastability is not an issue." 

The problem domain of cash forecasting is to get the operative cash flows of the business under comprehensive monitoring. The solution must enable the collection of data from dozens of different systems, offer tools for improving forecastability and make cash forecasting as easy as possible for subsidiaries.

A TMS vendor rarely has the expertise to do all this. An exception to this rule are TMS vendors who offer a specialized cash forecasting solution from a third party as an add-on/plug and play, part of their solution. This benefits both the customer and the TMS vendor as developing a cash forecasting solution requires a different set of solution capabilities than those of a typical TMS vendor. This allows TMS vendors to concentrate on its core competencies and yet offer a comprehensive cash forecasting solution to its customers. 

Unreliable or non-existent cash forecasting is expensive for your company. Believing in the above myths can delay the development of your cash forecasting and/or impact its quality.

By busting the myths, you can better position your business to quickly develop your cash forecasting technique and take it to a new level.