Cash flow forecasting: A top priority of treasurers?

Just a short while ago, PWC released its 2023 Global Treasury Survey Insights. Not much later, the EACT published the EACT Treasury Survey 2023. Both reports have emphasized the importance of cash flow forecasting and how high cash and liquidity management has been on the treasury community’s agenda.

It’s perhaps not a surprise to anybody: improving cash flow predictions for the future supports various business units to better manage their financial and commercial risks. No wonder cash flow forecasting is becoming one of the core focus areas in companies where treasury goes beyond operational focus and wants to be a strategic advisor to the business. Yet, in many companies, forecasts are still immature, and there’s room for improvement.

Inaccurate cash flow forecasting hinders competitiveness

Treasurers confirmed in the PWC survey: too often, cash flow forecasting is still inaccurate.

There are a few reasons for this. The main one, perhaps, is the lack of adequate cash flow forecasting tools – often, we still see that forecasting is performed in spreadsheets, using complex formulas, collecting data manually from several entities, and using large data sets.

Spreadsheets are, of course, a phenomenal tool – to a certain level. When you use it for forecasting, having all your stakeholders on board with the formulas can be difficult. It’s a classic example: if the person responsible for forecasting left the department, would you still be able to perform the forecasts without any disruptions? If you are unsure, perhaps it’s time to look into alternatives.

Data consolidation is a challenge

Perhaps an even bigger roadblock is data consolidation – manually, it’s not only time-consuming but also error-prone. Let’s assume you have 20 different entities on three continents – most of the time, you will be waiting, waiting, and waiting to get all the data from all parties before you can start the work. At this point, you still need to verify that the data you are using is correct. If the timeliness of the data matters for the business you are in, then this may not be the right approach. It is also one of the main reasons the forecasts do not reflect reality exactly.

Accurate forecasts equal better decisions

Today, having the correct forecast is essential to make better decisions and strengthen the company’s competitiveness – thus, performing cash flow forecasts as efficiently and accurately as possible should be a priority for treasurers. And as you can read in both reports we referred to in the beginning – it most definitely is. So what is then holding treasurers back to improve how they prepare cash forecasts?

Implementing a cash flow forecasting tool sounds like a large undertaking

Whenever you need to implement a new tool, it can be a bit overwhelming – it’s not only about setting up the new solution but also how you manage the upcoming change and the related communication and ensuring that you are training your employees. These are only a few of the concerns of the treasurers that are still on the fence about implementing a cash flow forecasting tool.

The first challenge is always: finding the right tool. It takes time to research what’s available on the market and understand whether it checks all the boxes. Then you also need to make sure it integrates with your existing systems.

Embrace the need for integrations

On to the next challenge: more integrations! To make your forecasts impeccable, you must integrate all your relevant data sources to create accurate reports. The more systems you have, the more intimidating this part of the project can be. However, once the integrations run in the background and you never need to wait for another data set to show up in your email inbox, you’ll be happy that you did it!

While most vendors are experienced with setting up integrations and will work with you, you still need to use in-house IT resources to complete the implementation. It’s been an upcoming trend to have dedicated IT resources on the team to support implementation projects for a while now. Treasury teams are also looking for IT-savvy talent as well as project management skills are appreciated to support with delivering solution implementation projects.

Manage change better to enable your users

Another challenge is definitely user training and adoption – while it may take time until everybody can use the solution well enough, in the end, you will be glad that you moved forecasting from a spreadsheet to a system that’s much more user-friendly.

Investing in better cash forecasts will pay out in the long-term

Naturally, implementation projects often happen as you perform your daily to-do’s – it’s never the right time to add more to your already lengthy to-do list. But in the end, if you want to support the business better by having more visibility into cash inflows, cash outflows, and cash balances, you can no longer work with inaccurate reports and poor data. The world is becoming more and more driven by insights, so prioritizing cash flow forecasting accuracy should be your priority – regardless of the challenges you will encounter during the solution implementation phase.