Strengthening your Cash Position through Good Forecasting: Five Key Factors

Good cash forecasting is a combination of procedures, tools and structures. It requires strong and organised team work and constant practice. Measurement metrics should also be implemented to gauge success and readjust accordingly as and where needed.

Forecasting should be carried with at regular intervals, depending on the organisation’s liquidity status to help it capture and provide visibility of major cash flows and provide a system of checks and balances on operations. Depending on the nature and geographies of the business, it could be beneficial to perform forecasting for major currencies at a global level to net-off various positions internally, instead of leaving a spread in different geographies with varying banks. Forecasting per currency will also help the global treasury team make informed decisions on whether to hedge or convert into functional currency, and the positions they wish to maintain.

Basic Ingredients

There are several key factors to have to be in place in order to promote good cash forecasting.

First, a good data flow is critical. The quality, timeliness and interconnectivity of data flowing within an organisation enable accurate forecasting. Business functions are, at times, unaware of the issues faced by treasurers. Hence it is important that precise variance reports are shared with key stakeholders on a regular basis in order to gauge the accuracy of information provided to them. This will not only ensure more efficient cash forecasting, but also improve the accuracy of information provided as wide variances reflect negatively on the business functions.

Second, employ the right tools. Enterprise resource planning (ERP) systems have automated information but are susceptible to acquisition and divestment changes within the organisation, as well as external factors such as different invoicing systems, late payments and unexpected demands for duties and taxes.

Treasury management systems (TMS) provide a cash forecasting module, but its capabilities are set within the boundaries of a treasury centre. It would be ideal to use a programme which stems from an organisation’s intranet or a Software as a Service (SaaS) application, which would consolidate the information from each country. Global banks have already recognised this void in service and begun tapping into the space as a value-added offering.

Microsoft Excel still remains a powerful tool for basic forecasting. Complex macros can be tailored to specific needs with statistical analysis on basic trends. However, Excel is limited by its inability to provide a detailed audit trail on the cash flow changes of an organisation, especially now as organisations centralise their finance departments in operationally low-cost offshore locations and treasury centres in tax-efficient countries.

Third, proactively manage collections and receivables. Tools for better management of receivables and collections are available. Businesses that see significantly large variations in daily cash receipts would also benefit from statistical analysis tools that continuously build on data to identify and understand collection trends. Trend analysis provides important information that treasury can use to make informed decisions on whether to raise funds accordingly to maximise yield and reduce unnecessary overdraft costs, or investment opportunities.

However, regardless of the tools used, timeliness is crucial. Statistical tools need to be continuously fed with current information to keep trend analysis relevant and treasury centres should receive daily cash flow requirements at an agreed time and period to allow for adequate time for data verification and execution.

Finally, having a liquidity management structure that incorporates solutions such as sweeping and notional pooling will help cash flow mismatches and penalisation, where a netting position would compensate one entity’s deficit with another entity’s surplus balance. Overall, it is beneficial for an organisation to set-up an overlay structure with an appointed main banking partner that is present in the same geographical markets and caters to multibank requirements to manage a consolidated position of all entities.


Regardless of the size of an organisation, a good cash flow forecast is the lifeline of a business and navigates the course of its growth. The key to good forecasting is ultimately a synergy of disciplined procedures, consistent teamwork, and the correct tools to match an organisations needs. Treasurers will also have to constantly measure the effectiveness of their forecasts against well-defined metrics, and continuously adjust and improve their process and benchmarks.


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