Beyond Excel: Choosing the best cash & liquidity forecasting solution

Selecting the best: A case for cash and liquidity forecasting solution   

Picture this: you have your daily expenses to cover salaries, bills, and inventory purchases. The question to ask is if you have enough cash to do so. Economic turbulence and downturns are known to cause cash flow challenges. How will that affect your operations? Weathering the storms and preparing for what's to come after is always that much easier when you can invest strategically in growth and expand with confidence, but having the excess liquidity to pull that off is a different matter altogether. Do you know what your current cash position is? What are your short-term and long-term cash flow projections? How quickly can you convert assets into cash? What are your financing options in case of a liquidity shortfall? With the right cash and liquidity solution, answering these questions is easy. But what is it? To know how to choose the best one for you, read on.

Meet the experts 

When cash and liquidity forecasting is done right, it helps you maintain a buffer for unforeseen costs and improves financial resilience. I had the privilege of sitting down with Nomentia's experts, Karl-Henrik Sundberg and Jouni Kirjola. Their extensive knowledge and experience in the field made it abundantly clear that understanding the amount of cash available at any given time is crucial for making informed financial decisions. 

Karl-Henrik Sundberg

Karl-Henrik Sundberg serves as Senior Product Manager for Cash Forecasting at Nomentia. With nearly a decade of experience at the company he brings valuable expertise from his prior roles as Director of Group Cash Management and Back Office in a Corporate Treasury, and in cash management software and solutions.

Jouni Kirjola

Jouni Kirjola is the Head of Solutions and Presales at Nomentia, bringing nearly 20 years of expertise to the role. Jouni’s extensive experience in payments, cash forecasting, in-house banking and reconciliation and deep knowledge of financial solutions make him an expert in delivering tailored solutions that meet clients’ needs. 

Why do you need to forecast cash and liquidity? 

Let’s take a mid-sized manufacturing company with a treasury function dedicated to maintaining sufficient liquidity to cover day-to-day operations. This team is tasked with ensuring the company can meet payroll, supplier payments, and other short-term obligations. However, the company’s leadership also wants to pursue aggressive growth, aiming to double turnover in the next year through increased sales and marketing investments. 

"Liquidity management is no longer just about balancing the books; it’s about anticipating challenges and being prepared for both best- and worst-case scenarios.” – Karl-Henrik Sundberg, Senior Product Manager for Cash Forecasting, Nomentia 

To further this ambition, the company also decides to enter a new market in Europe. The company sees this as a major growth opportunity, but the expansion requires significant upfront investment in market research, local staffing, product adaptation, logistics, and compliance with local regulations. While the leadership team is excited about the potential for increased revenue, the treasury function is concerned about how this will impact liquidity. 

A strategic struggle without cash visibility

Without comprehensive cash and liquidity forecasting, the company’s treasury team operates in the dark. They know how much money is flowing in and out on a daily basis, but they lack a longer-term vision of what the next few months hold. Now, with the new market entry plan, the company faces additional pressures: 

• Initial costs of market entry: High upfront expenditures for regulatory compliance, setting up distribution networks, and localized marketing campaigns start to drain the company’s liquidity.
• Uncertain cash inflows: Since this is a new market, the timeline for receiving payments from customers is unpredictable. Payment terms, currency exchange risks, and even unfamiliar customer behaviors increase the risk of delayed cash inflows. 
• Unforeseen operational costs: Operating in a new region is also likely to accrue unexpected logistical costs, like customs fees, taxes, and higher transportation costs, all of which can erode cash reserves. 

The company is soon caught in a paradox: in order to grow, they must invest heavily in market expansion, but these investments are draining liquidity, putting them at risk of not being able to meet short-term obligations at home. 

"Without accurate cash and liquidity forecasting, companies are essentially operating blind. They might know their immediate cash flow, but they lack the insight needed to plan for future challenges or opportunities. This short-term focus can be disastrous for long-term growth." – Jouni Kirjola, Head of Solutions and Presales, Nomentia 

Treasury’s new forecasting responsibilities

The company’s treasury function, which once focused solely on domestic cash and liquidity operations, now faces a new set of challenges that require a proactive approach. Their role has expanded significantly to include: 

1. Foreign currency risk management: The treasury team must now navigate currency fluctuations between their home market and the European market and ensure that they manage exchange rates effectively to avoid losses that could drain liquidity.
2. Enhanced liquidity forecasting: The team needs to implement more complex cash flow forecasting models that factor in the timeline of investments for the new market, the expected revenue streams, and the potential delays in customer payments. They must also account for the timing of market-entry costs, like setting up legal entities and marketing expenses, alongside their existing obligations. 
3. Entering the new market adds more uncertainty. The treasury team will need to conduct scenario analyses to model best- and worst-case outcomes. This will help them plan for cash needs under different revenue projections, delays, or unforeseen costs, ensuring they are prepared for any eventuality. 
4. Increased oversight of receivables and payables: With new international customers and suppliers, the treasury must maintain an even more rigorous monitoring system of receivables and payables. Delayed payments from international clients could create significant cash flow gaps if not closely tracked and followed up on. 
5. Financing and working capital management: The company may need to secure additional financing or lines of credit to ensure they have sufficient working capital for the expansion. The treasury team must explore options such as trade finance, local banking partners, and short-term loans in the new region to cover operational expenses.

Wake up and smell the cash: Causes and solutions of cash and liquidity shortages

As the dust settles, the company begins to see how poor cash and liquidity management, combined with a lack of market-entry planning, led to the crisis. If they had only applied detailed cash forecasting and liquidity management practices, they would have been able to avoid the situation entirely. With better forecasting, they could have developed a clear strategy to balance liquidity needs with growth initiatives—both domestically and in the new market. 

"Many companies have found themselves in a liquidity crunch because they don’t have a clear understanding of their cash position. Without a proper forecasting solution, it’s difficult to predict how market expansion, currency risks, or delayed payments will impact liquidity." – Karl-Henrik Sundberg, Senior Product Manager for Cash Forecasting, Nomentia 

With the treasury team being more proactive in foreign currency risk management, receivables tracking, and liquidity forecasting, the company would have ensured that sufficient cash was available to support both ongoing operations and the market expansion. Instead, they find themselves scrambling to cover costs, leaving their new market dreams at risk of failure. 

"Businesses often get caught off guard by liquidity shortages when they don’t have proper forecasting in place. A sudden cash flow gap can lead to missed payments, damaged supplier relationships, or even halted operations." – Jouni Kirjola, Head of Solutions and Presales, Nomentia 

Now, many a thing can cause a sudden cash shortage and dry up business plans: 

1. Delayed customer payments: A major client delays payment beyond agreed terms, leaving the company without the expected cash inflow.
   • Impact: Delayed customer payments can lead to an immediate liquidity shortage and cause a domino effect on the company’s ability to meet its own obligations. 
   • Solution: Implement stringent cash flow forecasting and monitor receivables closely, sending reminders or implementing penalties for delayed payments. 

2. Sudden loss of a major client: Relying heavily on one or two key clients for the majority of the company’s revenue is at risk of cash shortages if one of these clients suddenly terminates their contract or goes out of business.
   • Impact: Losing a major client can create a significant shortfall in cash inflows and make it difficult to cover immediate expenses. 
   • Solution: Liquidity planning, combined with client diversification strategies, can help mitigate the impact. By forecasting potential cash flow disruptions, companies can develop contingency plans like securing alternative sources of revenue, maintaining an emergency fund, or negotiating more favorable terms with suppliers. 

3. Unexpected tax payments or legal penalties: An unexpected tax obligation or a legal settlement emerges, requiring immediate cash outlay.
   • Impact: Sudden cash depletion that can derail operational liquidity. 
   • Solution: Regularly set aside reserves and account for potential unforeseen costs in cash flow projections. 

4. Supply chain disruptions: Suppliers may demand earlier or larger-than-expected payments due to their own cash flow issues, forcing the company to make immediate, unplanned disbursements.
   • Impact: Cash is drained from accounts quicker than forecasted, putting pressure on liquidity. 
   • Solution: Maintain open communication with suppliers and account for such scenarios in liquidity buffers. 

5. Customer bankruptcies or financial insolvency: A customer facing financial difficulties or bankruptcy might not be able to pay outstanding invoices.
   • Impact: The business loses a significant number of receivables, which leads to cash flow gaps.
   • Solution: Credit risk analysis and liquidity forecasting along with scenario planning, can help businesses mitigate the risks associated with customer insolvency and under-diversified customer base.

6. Natural disasters or unforeseen disruptions: Unpredictable natural disasters, like hurricanes, floods, or earthquakes, can cause significant operational disruptions and halt production or sales. 
   • Impact: Sales could drop dramatically while operational expenses and recovery costs skyrocket, causing immediate liquidity shortages.
   • Solution: A well-structured liquidity forecast would include contingency planning for such events. Businesses can build emergency funds, secure disaster insurance, and establish alternative supply chains to maintain operations and preserve liquidity during such disruptions. 

7. Inventory buildup: A company invests too heavily in inventory without adequate planning for how long it will take to sell.
   • Impact: Excess cash is tied up in unsold stock, which leaves the company short on liquid cash.
   • Solution: Using inventory and cash flow analysis to balance stock levels with liquidity needs. 

8. Regulatory or compliance changes: Sudden changes in regulations, like new environmental standards, tax laws, or labor regulations, can increase costs unexpectedly.
   • Impact: Compliance costs can drain cash reserves quickly, especially if these costs are unanticipated in the company's budget. 
   • Solution: Effective cash flow planning can anticipate potential regulatory changes, allowing businesses to set aside funds for compliance or negotiate phased implementation with authorities. Regular updates to the liquidity forecast ensure the company can react to regulatory changes without putting operations at risk. 

9. Interest rate fluctuations: If a company has significant debt with variable interest rates, unexpected increases in interest rates can lead to higher debt-servicing costs. 
   • Impact: Higher interest payments reduce available cash for other operating expenses, potentially leading to liquidity issues. 
   • Solution: Companies can manage this risk by conducting interest rate sensitivity analysis as part of their liquidity forecasting, hedging against interest rate increases, or refinancing to lock in fixed interest rates before increases occur. 

"A lack of strategic liquidity management can turn even small cash flow issues into major business disruptions. Without a dedicated solution, you risk underutilizing your capital, mismanaging risks, and ultimately putting your growth plans in jeopardy." – Karl-Henrik Sundberg, Senior Product Manager for Cash Forecasting, Nomentia 

Why do you need a cash and liquidity forecasting solution (and not an Excel)? 

Forecasting cash and liquidity can help with many things: It can improve financial stability, increase stakeholder confidence, and anticipate and mitigate liquidity potential liquidity issues. However, whether you need a liquidity forecasting solution is not often as clear-cut as choosing between Excel forecasting templates or a cash forecasting solution. You might need one, and you might understand the benefits, at least in theory, but whether your business is able to fully utilize such a tool is more a question of what’s right for you. Getting where you need to go starts with: 

Recognizing the challenges of liquidity management 

"When treasury teams lack the tools for accurate forecasting, they spend more time firefighting—dealing with urgent cash shortfalls and currency risks—rather than driving strategic initiatives. This reactive approach puts the entire business at risk." – Jouni Kirjola, Head of Solutions and Presales, Nomentia 

 The simplest way to assess your organization’s liquidity management and cash forecasting needs is to look at the maturity level of funding and investment optimization, currency management, process automation and harmonization, and control and analysis capabilities. 

"The expanding responsibilities of the treasury—such as managing foreign exchange risk and optimizing working capital—require advanced forecasting tools. Without them, treasury functions can become overwhelmed, leaving the company exposed to liquidity challenges." – Karl-Henrik Sundberg, Senior Product Manager for Cash Forecasting, Nomentia

Relating back to our example, we can now look at how a growing multinational company, operating across several regions with multiple currencies, found itself struggling with its liquidity management. As their business expands, their treasury team had only Excel spreadsheets to rely on in order to track liquidity and forecast cash flows. These spreadsheets were updated manually with data pulled from fragmented financial systems and bank accounts spread across various countries. 

As the company began considering entering a new international market, it faced significant liquidity management challenges: 

• Inconsistent cash flow forecasts across different departments and regions. 
• Delays in cash flow reporting, which lead to a lack of real-time insight into the company’s liquidity position. 
• Difficulty in managing currency exposures also resulted in costly and frequent foreign exchange conversions. 
• Errors in consolidation due to the manual nature of the process often lead to misinformed decisions about cash availability. 

The company realized that its liquidity management processes were highly inefficient and prone to errors. They were operating at an "aware" level of liquidity management characterized by low predictability of cash flows and a heavy reliance on error-prone manual cash flow data collection and forecasting processes. They began: 

Assessing the need for a cash and liquidity forecasting solution 

As the business continued to grow and expanded into new markets, it became clear that relying on Excel templates for cash and liquidity forecasting was no longer sustainable. To evaluate the need for a forecasting solution, the treasury team took a detailed look at four key areas of their liquidity management process:

1. Optimizing funding and investments: 

• Current level of liquidity management: Aware
  • With low visibility into future cash flows, the company had to maintain high liquidity buffers, which resulted in underutilized cash that could have been invested or used for strategic growth. 

• Required level liquidity management: Improving to leading
  • The company needed accurate and real-time forecasting to make informed decisions about when to invest surplus cash or seek financing, especially as they entered new markets. 

"Effective funding and investment optimization is crucial for sustainable growth. Without a clear understanding of cash flows, businesses risk underutilizing their available capital, and missing opportunities for strategic investments." –Karl-Henrik Sundberg, Senior Product Manager for Cash Forecasting, Nomentia

2. Optimized currency management: 

• Current level: Developing
  • The company lacked full transparency into its currency exposures, which led to unnecessary foreign exchange transactions. Currency management was handled on an ad-hoc basis, without considering future cash flow needs. 

• Required level: Improving to leading
  • The treasury team wanted full visibility of currency exposures, enabling them to net positions across regions and minimize currency conversion costs. 

"Currency management must be a strategic priority. When businesses lack a clear view of their foreign exchange exposures, they leave themselves vulnerable to costly surprises that can impact on their bottom line." – Jouni Kirjola, Head of Solutions and Presales, Nomentia

3. Process automation and harmonization:

• Current level: Aware
  • The reporting process was manual, slow, and inconsistent across regions. It required hours of work to extract data from different systems and bank accounts, creating delays and reducing overall accuracy.

• Required level: Leading
  • A fully automated process with real-time integration to ERP systems and banks was needed to reduce manual labor and allow the treasury team to focus on more strategic tasks.

"In treasury, the ability to automate and harmonize processes across different regions is essential. This not only enhances accuracy but also allows treasury professionals to focus on strategic initiatives rather than repetitive tasks." –Karl-Henrik Sundberg, Senior Product Manager for Cash Forecasting, Nomentia

4. Control and analysis capabilities:

• Current level: Aware
  • Consolidation of data was manual, time-consuming, and prone to human error. The team spent more time validating and correcting data than analyzing cash flow trends. 

• Required level: Improving to leading
  • The treasury team required a system that could automatically validate and consolidate data, providing real-time analysis and reporting capabilities to support decision-making. 

"Improving control and analysis capabilities allow treasury teams to make informed decisions. When they can analyze cash flows and risks effectively, they can respond proactively to market changes and ensure financial stability." – Jouni Kirjola, Head of Solutions and Presales, Nomentia

Cash and liquidity forecasting solution: Evaluating the benefits  

Based on their analysis, the company recognized that an advanced cash and liquidity forecasting solution was necessary to improve their cash flow visibility, reduce operational inefficiencies, and minimize risks. They compared the limitations of Excel to the benefits of a dedicated forecasting solution: 

Transitioning to an advanced cash and liquidity forecasting solution 

Once the company understood the clear limitations of Excel and the potential gains from an advanced forecasting solution, they moved forward with implementing a dedicated tool, resulting in: 

1. Automated data collection: The company's financial data from multiple ERP systems and bank accounts were now seamlessly integrated into one platform, eliminating the need for manual updates and providing real-time cash flow information across all business units and regions. 
2. Improved forecasting accuracy: With predictive analytics and detailed historical data, the company could forecast cash flows for the coming months with high precision. This allowed the treasury team to plan for future investments and funding needs with confidence. 
3. Optimized currency management: The solution gave the company full visibility of its multi-currency exposures, allowing it to net positions and minimize foreign exchange costs. This also helped reduce the risk of currency fluctuations in their international operations. 
4. Faster decision-making: Real-time insights and advanced reporting tools allowed the treasury team to quickly respond to liquidity needs and investment opportunities. Scenario planning features enabled the team to evaluate different funding and investment strategies based on accurate cash flow forecasts. 
5. Time savings and strategic focus: With processes automated, the treasury team could now focus on value-added tasks such as optimizing working capital and exploring investment opportunities. Instead of spending hours on manual data entry, they were now driving strategic initiatives that contributed to the company's growth. 

“By leveraging advanced cash and liquidity forecasting, companies can navigate risks like delayed customer payments or foreign currency fluctuations more effectively." – Karl-Henrik Sundberg, Senior Product Manager for Cash Forecasting, Nomentia 

Aftermath: Cash and liquidity forecasting solution

After implementing the new system, the company saw immediate benefits in terms of visibility and efficiency. The automation of data collection and the improvement in forecast accuracy allowed the treasury team to operate with confidence. They were able to optimize their working capital, reduce foreign exchange costs, and allocate liquidity more strategically. 

With the new forecasting solution in place, the company was well-prepared to enter the new international market. The treasury team could now anticipate cash flow challenges and manage currency risks more effectively, ensuring that liquidity would be available when needed. 

Selecting the right solution for cash liquidity forecasting 

For companies with increasingly complex operations, relying on Excel for cash and liquidity forecasting is likely to create liquidity bottlenecks, increase errors, and limit strategic decision-making. As businesses expand their operational footprint, manage multiple currencies, and deal with fragmented systems, the need for a dedicated cash and liquidity forecasting solution becomes essential. 

By assessing where your business stands in terms of funding optimization, currency management, process automation, and analysis capabilities, you can determine whether an advanced forecasting tool is the right solution to meet your liquidity management needs. The move from Excel to a modern, automated forecasting solution not only improves accuracy and efficiency but also empowers treasury teams to make data-driven decisions that support growth and financial stability. 

Read more

• 11 reasons to implement a cash and liquidity forecasting solution
• 10 Ways to improve your cash flow forecasting
• 6 Key best practices in cash flow forecasting
• Top 10 best cash flow forecasting software providers