Improve Cash Flow Forecasting and Liquidity Management

The challenges associated with collating data and ensuring its integrity frequently render cash flow forecasting little more than guesswork. As a result, many treasurers remain somewhat in the dark as to the true state of company cash flows and liquidity positions. This is a serious issue: now more than ever before as tightening liquidity constraints mean that every penny counts.

Cash flow forecasting is an essential component to company cash and liquidity management as it enables the treasurer to anticipate hazards and make the most of positives. Accurate forecasting also puts fiscal resources to use in ways best suited to the long-term goals of their organisation.

While it is straightforward enough to keep track of outflows, predicting cash inflows can be surprisingly difficult. Unlike payables, receivables are not in a treasurer’s control, as they juggle an increased workload and greater responsibility. Many treasurers shy away from the challenge of implementing the required processes for improved cash flow forecasting and liquidity management. For those that are striving to address the issue, and those that currently are not are only delaying the inevitable, a strong starting point is the re-evaluation of their fundamental and long-standing data-management practices.

A chief problem for many corporates, particularly multinational corporations (MNCs), is their geographical spread. Companies that operate across borders will need to collate data across varied time-zones, different working weeks and national holidays, making it a challenge to co-ordinate when and how data will be received. Not only does this hamper forecasting efforts, it makes overall liquidity management a challenge, as data is inconsistent in terms of both timing and formatting. This makes it difficult to view, control and interpret.

While this can, to some extent, be improved by establishing rigid company rules and frameworks with respect to data collation and presentation, the optimisation of cash flow forecasting and liquidity management ultimately depends on technical capability.

A Question of Technology

The efficiency and capability of technological data tools, or lack thereof as the case may be, is the most significant factor hindering cash flow forecasting and optimal liquidity management in the majority of cases. Corporate treasury departments tend to fall into one of two camps, neither of which results in optimal data management. Many companies find that their treasury management system (TMS) is either not sophisticated enough, or adds an unwelcome layer of complexity to what is already a time-consuming process, particularly when combined with an enterprise resource planning (ERP) system.

Given this many treasurers, despite considerable advances in banking technology, prefer to use traditional and familiar systems such as Excel to record data. They lack technical sophistication and can easily accommodate last-minute changes to data reports. However, these systems lend themselves to human error and can be highly inefficient. While a treasurer’s desire to stick to the process that they know best is understandable, being a step ahead is now crucial to business survival. Such business advantage is only possible with enhanced data visibility and control, as well as access to sophisticated treasury management platforms that offer enhanced data management functionality.

Indeed, the ability to gain a comprehensive view of company transaction data on a single platform is invaluable, as it enables treasurers to improve cash flow forecasting by making past movements easier to access and current trends easier to observe. The ability to view data in this way will also significantly aid liquidity management, particularly if the data provided is real-time and presented in the treasurer’s format of choice.

Current market challenges require treasurers to make quick and well-informed decisions, but this is an impossible task if treasurers are struggling with too little data or inundated with too much. What treasurers need, therefore, are advanced technology systems that can be customised to their individual needs.

With this mind, technology platforms that are primitive or outmoded systems, compromising a little more than a pen, paper and calculator no longer make the grade. Successful treasury management now depends on sophisticated and user-friendly technology that integrates the three pillars of cash, liquidity and risk management to improve visibility, aid cash forecasting and ensure that contingency plans are in place to safeguard business continuity in the event of further economic shocks.

The Future of Cash and Liquidity Management

Many corporate treasurers, particularly in light of their newly expanded role, recognise the need to improve their cash and liquidity management practices. Crucial to this process is added capability without complexity, which combines ease-of-use, the ability to view a consolidated liquidity position across regions, currencies and banking relationships, and improve the accuracy of cash forecasting and risk management.

In response to this some global banks have adopted a consultative methodology to solutions development with the aim of providing a user-friendly approach to technology sophistication. These so-called ‘next generation’ treasury solutions are designed to offer liquidity management platforms capable of integrating with existing systems and giving the treasurers complete control over how the information is received and presented; hence, not only is the data sufficient, but also tailored to the treasurer’s specific requirements.

These solutions can also provide access to a broad range of treasury and liquidity services, including enhanced visibility of global balance positions, foreign exchange (FX) exposures, cash flow planning, and an interactive and actionable suite of investment services, through a single sign-on. They should increase transparency and operational efficiency, both of which are vital now and in the future.

Long-term commercial success depends on optimising all aspects of liquidity management, including cash flow forecasting, and this can be challenging enough without inadequate systems causing as many problems as they solve. Tools that can provide visibility of end-to-end process flows and accumulate and present relevant data will prove invaluable to treasurers in today’s market, as they will enhance their ability to predict cash flows, stop business hazards in their tracks and make every penny work as hard as possible to the company’s benefit. As a result corporates will stand every chance of remaining strong and prospering despite ongoing market turbulence.

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