Improving Cash Flow Forecasting and Optimising Working Capital

Cash flow forecasting is key for corporates to avoid any liquidity crises; several companies have felt the direct consequences of insufficient liquidity in the market. It is particularly dangerous when banks are focused on internal issues to resolve their own liquidity challenges and interbank risks. As a consequence, even some of the most long-standing and traditional companies faced challenges to obtain liquidity while they had to actively manage their risks associated with bank exposure.

Securing Corporate Liquidity

Although it is difficult to measure every company by the same yardstick, it can be said that companies with a solid liquidity reserve are usually in a stronger position to get through such a financial crisis than those without sufficient reserves. It has to be one of the key strategic aims of a company to secure sufficient liquidity at all times in order to safeguard business operations. An efficient and company-wide cash and liquidity management is crucial in achieving this objective.

Optimising Working Capital Management

Effective cash and liquidity management is back at the top of the corporate agenda. Corporates had to revert back to their own resources to get through the banking crisis of 2008. Tracking and optimising internal resources continues to prove to be a successful way to reduce the dependency on external funding and counter-market challenges. The first key priority is to clearly understand how much liquidity a company has in all its accounts across its different countries. This baseline will determine the optimisation potential for using cash more effectively and streamlining internal processes.

As a result, working capital will be optimised: deficient accounts of one corporate subsidiary can be offset with the surpluses of another subsidiary, and surpluses can be invested – not just in short-term solutions but also in more strategic long-term solutions. By optimising overall working capital management, corporates will also achieve the second key target of efficient cash flow forecasting: reducing the costs that are related to retaining high(er) levels of liquidity.

Improving Credit Ratings

In addition to mobilising its own resources, efficient cash flow forecasting also helps to strengthen the credit rating of a company. After the liquidity crisis and in the light of Basel III, banks have started to request more information from corporates applying for credit such as transparent cash flow analyses. These analyses are one of the key indicators demonstrating the financial health of a company and its ability to cope with unforeseen events. Therefore, cash flow forecasting increasingly influences the external financing available for corporates.

Getting the Optimal Level of Liquidity Right

Keeping the balance between too tight or too high levels of idle cash is one of the key challenges of liquidity management. A cash reserve is always necessary to cover the company’s overheads, to meet credit rating requirements and provide a buffer for investments, as well as any unforeseen events. While it is a pretty straightforward matter to measure the liquidity requirements for purchases, overheads and credit ratings, it is more complex to plan liquidity requirements.

Events such as unexpected market dynamics, natural disasters, or political instability are highly uncertain variables which are highly difficult to predict. However, a cash-flow based liquidity plan could incorporate many of these uncertainties, even the unpredictable events, by leveraging best, worst and average case scenarios.

Consolidating Dispersed Data Sources

Although many companies have significantly stepped up their efforts in recent years to optimise their cash flow forecasting and their working capital management, there is still more room for improvement: even today it is not uncommon that cash flow data is dispersed across many different accounts, systems and sources. The limitations of using spreadsheets for consolidating such diverse data are obvious; many manual tasks are involved which may lead to errors and tie up staff who could work more effectively on analysing the actual results. Updating the data in a spreadsheet is just as tedious as collecting the data in the first place, and hinders corporates in gaining real-time positioning.

Implementing Specialised Technology

The change is here. By deploying specialised technology, which is ideally fully embedded in centralised enterprise resource planning (ERP) systems, for example SAP, corporates are on the inside track when it comes to efficient cash flow forecasting. With such a solution, all balances of the company’s subsidiaries are automatically and without any risk-prone interfaces integrated into a single integrated view. Indifferent of the types of systems, languages or local conditions, subsidiaries are taken into account and seamlessly integrated to enable company-wide visibility.

It is not the accounting data that forms the basis for the forecasting, but instead, the planning is based on the more up-to-date actual data. Automated processes reduce the time-consuming manual transfer of data from one source to the other and ensure reliability of data. International corporations benefit from time-saving, automated technology that enables a comprehensive and company-wide overview in real time.

The actual financial situation of a company becomes instantly clear, and cash flow forecasting is based on solid data instead of best guesses. This drives efficiency gains and also allows for a reliable performance analysis of the company’s subsidiaries, business operations, products, and other elements.


If corporates want to leverage best practice, it is imperative to maintain efficient and effective cash flow forecasting. A central and real-time overview of company-wide cash positions forms the basis for accurate strategic decisions, and internal as well as external resources can be mobilised more easily. Next generation ERP-integrated software solutions automate manual tasks and ensure optimal levels of liquidity, providing transparent and compliant data.


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