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June 15, 2018

Cash management in a crisis

A crisis needn’t hit your company directly for you to be impacted. The recent outage on the Visa network across Europe was the start of what could have been a considerable problem for many treasury teams across the globe. In the end, this problem didn’t escalate into a full-blown crisis, but an outage on a key payment channel during a busy time of the week presents a substantial risk to the cash flow of a business. Had it lasted more than a few hours, drastic action would have been needed.

For a large, multinational company, there is always a crisis looming around the corner. Scale brings many advantages, but it adds exposure to many more risks. Having a high profile increases a company’s likelihood of being a target for a cyber-attack, having a global presence increases geo-political risk, heavy reliance on haulage and shipping can make a company vulnerable to wild fluctuations in oil prices, the list goes on.

Not every risk will become realised, of course, but inevitably there are some that will hit, and some that will miss. In this blog post we explore what a treasury department can do to ensure that it is ready, when the worst happens.

When disaster strikes

Carillion’s collapse in January caused huge problems, not just for its suppliers but also for companies seen as operating similar business models. Carillion’s customers faced an immediate cash crunch, leading to the failure of numerous businesses. Carillion’s contemporaries faced intense market scrutiny, leading to falling share prices and major questions over their long-term viability.

Incidents of this scale are rare, but disaster can strike in a variety of ways. It can hit you directly, like the NotPetya cyber-attack struck Maersk in June last year, costing $300 million. Or it might be a data breach, such as the incident at Equifax, which could be the most costly in corporate history (estimates currently sit at over $600 million). Alternatively, it might be internal practices that trip the company up, like the emissions scandal that rocked VW, costing a whopping $30 billion. In all of these instances, from a treasury perspective, it is the impact on cash flow and how you can respond that matters.

How does this affect Treasury?

Treasury is a department familiar with managing and mitigating financial risk. A crisis in the business will ultimately have a financial impact, and therefore the attention will quickly turn to the Treasury department.

When the crisis hits, and the focus quickly turns to cash, the executive leadership and other key stakeholders (banks, shareholders etc.) will ask:

  1. What damage has been done? (How has this affected cashflow/working capital?)
  2. What action needs to be taken now, if any? (Is fundraising required to shore up liquidity?)
  3. What further damage may be done if the issue continues? (What are the effects on cash flow of continued disruption to this revenue stream?)
  4. How can we alleviate that damage as much as possible? (What changes can be made to absorb the impact?)

If the cash and liquidity processes are running like a well-oiled machine, the treasurer will be able to give confident answers to these questions. As with any good crisis response, the key is preparation.

What do you need first? A cheat-sheet

First and foremost, managing cash in a crisis is about knowledge and fast access to information. While the Visa network issue a couple of weeks ago didn’t cause a full-blown crisis, it would have directly impacted the liquidity of many businesses and had it lasted longer would have no doubt caused a crisis for some.

In this situation, an understanding of the following would be necessary:

  1. How much revenue is collected through the Visa network daily?
  2. How much of this was in the affected areas?
  3. For the hours of the outage, what could be the maximum impact if no revenue was collected through Visa?
  4. Assuming there’s a lag in receiving cash from Visa, on what day will the drop-in revenue be felt?

Reaching out to the business quickly to gather on-the-ground analysis of the true impact will be central to the message delivered to executives while also allowing a plan of action to be crafted quickly.

For the top four or five potential threats to any business, be it a payment channel outage or a cyber-attack, a similar cheat sheet of KPIs will be needed to ensure treasury’s response is as valuable as possible.

How can you respond?

Ultimately, the response to the crisis, over and above quantifying the potential impact, will be the headline measure of treasury’s effectiveness. The response to a cash crisis will typically rest on access to internal and external liquidity.

You’ll want to know your current cash reserves (across all business units, in all locations and all currencies), and you’ll want to know them in real-time. That way you’ll know where you stand at the point of impact, and how much runway you have left.

From an external point of view, you’ll need to know how much undrawn liquidity is immediately available and how much support will financial backers provide if the situation deteriorates. Getting cash quickly into the business is the only action that will stave off a true crisis. Banks will want to know the potential impact on covenant and profitability levels so these will need to be close at hand.

How can you prepare?

Preparation is all about making sure that all of your cash and liquidity processes are running smoothly and your cash reporting and forecasting is comprehensive and accurate. A good cash forecasting process will include a clear view of accounts receivable, so you’ll be able to quickly factor that in to your incomings. A good forecast will also show what your accounts payable are, and where they can be delayed. Finally, you should be able to easily factor into the cash forecast which revenue streams have been shut off (or diminished) and what impact the impact on working capital will be.

When is the right time?

Unfortunately, however, if disaster strikes now and you aren’t fully prepared, if your cash flow reporting and forecasting processes are manual, slow, and inaccurate, it will be too late. Making sure the house is in order before a crisis hits will enable Treasury to respond confidently when called upon.

Setting up a new cash flow forecasting process can be achieved within a few weeks. The key to managing the roll-out project smoothly is to have buy-in from key personnel from the outset. Outlining the value that can be added in a crisis is a good way to contextualise the benefits the new process will bring.

Should you use software?

Many treasurers still run their cash forecasting processes manually on spreadsheets. However, in a crisis scenario, the CFO will want real-time reporting, across all business units, and a degree of forecasting accuracy that just cannot be achieved without the use of specialised software. To ensure a best-in-class cash forecasting process, it is therefore best to use dedicated cash flow forecasting software.

June 07, 2018

How to increase accounts receivable forecasting accuracy

Accounts receivable forecasting is one of the most important, and the most challenging, elements of a cash flow forecasting process for head office finance and treasury teams.

It is the element of a company’s cash flow forecast that estimates the amount of cash it is due to receive over a set period. The majority of these receivables will come from the company’s customers.

In this blog post we’ll outline some simple steps for increasing the accuracy of accounts receivable forecasts.

Why is accounts receivable forecasting important?

Accurate and reliable accounts receivable forecasting can have a large impact on the working capital of a business. In particular, clarity on short term upcoming accounts receivable can reduce reliance on short term external financing facilities. Therefore, improved accounts receivable forecasting not only allows a business to be become more nimble and efficient with regards to how they use cash, it also directly impacts the bottom line.

Why is accounts receivable forecasting difficult?

The challenges for a head office team managing a forecasting process are numerous due to the sheer volume of data, range of systems, and number of entities involved. Accounts receivable forecasting is particularly challenging as much of it is out of the receiving company’s hands. While payment terms are agreed, they may not always be adhered to.

It is easiest to break receivables forecasting into two parts: short-term and long-term. Long-term forecasting tends to be more straightforward as customers will, by and large, eventually pay their bills. Short-term forecasting is more difficult because there can be variability in when those bills are paid as well as variability on when cash will actually be received. A customer may delay payments because of difficulties in the supply chain (i.e. they themselves are awaiting payments from third party vendors), because they are holding cash for reporting purposes, or for many other reasons.

How to improve short term accounts receivable forecasting

As forecasting is a forward looking activity there is no silver bullet that will solve all issues. However, based on our experience helping large companies to set-up and manage forecasting processes, taking the following basic steps can dramatically improve the quality and accuracy of accounts receivable forecasts.

Step 1 – historic data analysis

Developing an understanding of past accounts receivable behaviour is the first step in trying to more accurately forecast future customer receipts. There is no hard and fast method for this analysis but ultimately what is learned is more important than how it is done.

At a base level, an analysis of historic accounts receivable data should highlight:

  1. Problematic areas within the receivables ledger, such as customers who consistently don’t pay to term.
  2. The largest customers and their payment behaviour.
  3. The most volatile components of the receivables ledger (e.g. certain business units, product lines or customers).
  4. Seasonality at both a macro and micro level.

The goal of this exercise is to define what areas of the receivables ledger cause the most problems and are the most difficult to forecast. This will allow improvement efforts to be focused on these areas. Applying the 80:20 rule to all aspects of this analysis will significantly speed up the process.

Step 2 – split accounts receivables into sub-categories

The historic analysis will facilitate the accounts receivable ledger to be broken into various reporting sub-categories, depending on what needs to be focused on and improved.

A common sub-categorisation is based on customer size. Looking at accounts receivable as a single number is challenging as, even in mid-sized companies, it comprises many moving parts. A simple 80:20 split will quickly focus the analysis on the largest customers and their payment behaviour.

Further or additional customer categories can include:

  • Payment terms
  • Time of week or month when payment is expected (e.g. last week of month)
  • Credit quality/score

This type of categorisation is key to the efficient ongoing analysis of accounts receivable behaviour.

Step 3 – monitor and adjust assumptions

Accounts receivable analysis and forecasting is an ongoing exercise. The steps outlined above lay the foundation for ongoing analysis which in turn leads to adjustments to forecast assumptions, or to actions that improve cash flow collections.

Variance analysis is the primary piece of analysis that will be carried out as part of any effort to improve accounts receivable forecasting. Variance analysis demonstrates how forecasts perform versus actual data. This in turn shows how assumptions have performed and what needs to be changed for the next forecast iteration.

This process of ‘monitor – update – iterate’ will help cash forecasting accuracy measurement and move a forecast from low to high quality, over a relatively short period of time.

Using specialised forecasting tools

As with most parts of the cash forecasting process, accounts receivable forecasting can be done manually on spreadsheets by collating all of the required input data and entering it into your models.

However, the use of specialised software can help not only by automating the data collection/collation process across numerous data sources, but also with analysing and improving accuracy. The use of specialised software also enables predictive analytics as a method of analysis, offering in-depth insight into what may be affecting forecast accuracy.

Reviewing your cash forecasting process

If you are considering setting up a new cash forecasting process, we have written a cashflow forecasting setup guide, which we welcome you to download.

May 18, 2018

CashAnalytics at the ACT Annual Conference

We were pleased to exhibit at the ACT Annual Conference in Liverpool on the 15th and 16th May 2018, and were delighted to be visited by some of our clients who took the opportunity to visit our stand and let us know how well they are getting on with our software.

The conference gave us the opportunity to engage with prominent figures within the industry and hear the key issues that corporate treasurers are currently facing.

The panel discussions in particular offered some great insights into how the industry as a whole is changing.

If you were at the conference but missed the chance to see a demo of our software, please contact us by clicking here.

May 10, 2018

CashAnalytics Summary Series: Bank of England Inflation Report May 2018

The CashAnalytics Summary Series takes major Central Banks’ extensive reports (often well over 150 pages), and summarises them into 5 minute reads.

This release summarises the Bank of England quarterly Inflation Report which sets out the economic analysis and inflation projections that the Monetary Policy Committee uses to make its interest rate decisions. The report was released on the 10th May 2018.

The key points covered in the report include:

  • The Monetary Policy Committee (MPC) voted by a 7-2 majority to maintain Bank Rate at 0.5% at its meeting ending on 9th May 2018.
  • The MPC’s central forecast for economic activity has changed little since the previous report, with GDP expected to grow by around 1.75% per year.
  • Bank lending rates for companies have risen since August 2017.
  • CPI inflation fell to 2.5% in March.

To read the summary of the Bank of England Inflation Report, please click here.

March 29, 2018

Rising rates put pressure on accuracy of cash forecasts

Accurately forecasting cash positions becomes increasingly important as interest rates rise, due to the opportunity cost of holding uninvested cash.

At its recent monthly meeting the U.S. Federal Reserve increased the Federal Funds rate from 1.5% to 1.75% and indicated rates will rise faster than previously anticipated. The new Fed Chairman has taken more hawkish stance on rates than his predecessor Janet Yellen as he attempts to cool a U.S. economy that is growing faster than originally forecast.

In an environment where rates are rising and are expected to do so for the foreseeable future, the direct cost of debt and the opportunity cost of holding uninvested cash both increase significantly. Therefore, the quality and accuracy of cash forecasts used to plan for future liquidity needs come into sharp focus.

In other words, as rates increase, the cost of inaccurate cash forecasting can become a significant penalty.

Measuring Accuracy is a Challenge

In large organisations, cash forecasting requires the collection of vast amounts of data from a wide array of sources. Because of this, measuring the accuracy of a cash forecasts is not a straightforward task, simply due to the volume of data points that have to be analysed and the amount of work involved in carrying out a thorough analysis.

As actual cash data is required to measure the accuracy of forecasts, the level of data available to a treasury and finance team will determine which elements of the forecast can be analysed. For example, if only closing cash balances can be accessed, it is only the closing cash positions in the forecast that can be measured. Whereas if transactional cash flow data is available, other components of the forecast, such as operating and investing cash flows, will be able to be analysed for accuracy.

Decide What to Measure

Choosing what to measure, and how frequently to measure it, is the first step in understanding forecast accuracy. Analysing closing cash positions and net cash movements will provide a good gauge of overall forecast accuracy. Cash generation and working-capital based analysis will give a better understanding of cash flow performance, although this will require more forecast and actual detail.

Choosing the component of the forecast that means most to a business, and then measuring it, is a good starting point.

Once metrics are chosen, the time horizon will need to be selected. As with choosing a component of the forecast to focus on, it is important to select the time-period or date that matters most to the business. Whether this is month-end, year-end, or a monthly debt rollover, once the key dates/times are identified, the forecast reporting processes should be built around them.

Choose a Simple Method of Accuracy Measurement

There are various methods that can be used to measure accuracy. Below is a high-level view of two of those methods, “Single Period Actual versus Forecast” and “Count Down Accuracy Analysis”.

As would be expected from the name, a single period versus actual forecast is useful for single period analysis such as week-on-week or month-on-month. Forecast accuracy is best described through a percentage and can be calculated by dividing the gap between the actual and forecast figure, by the actual figure.

A count down accuracy analysis involves measuring a number of different forecasts which are made in the approach to the target date. These forecasts can then be analysed for accuracy as soon as the actual figure or flow on the closing date is known. For example, the table below shows four forecasts made for the December 31st closing cash position in the lead up to the target date. The actual figure for 31st December in this example is €13,500,000.

€ 000’s

Date of forecast

Days to target date

Forecast for 31st December

Difference vs actual

Forecast accuracy

Forecast 1

3rd December





Forecast 2

10th December





Forecast 3

17th December





Forecast 4

24th December





As could be expected, the accuracy percentage increases as the target date approaches.

Count down analysis line graph

Presenting the results of the analysis as a graph helps to give a clearer picture of trends in the forecasts. In this example, each of the forecasts was overly conservative, and achieved only 49% accuracy four weeks before year-end, rising to 89% accuracy one week before year-end.

Keep the Analysis Focused

To provide high quality analysis, the forecast reporting processes should be targeted. If the methodology is overly complex, it can prove difficult to identify trends and make the necessary improvements. Choosing the most important metric, and the most relevant time horizon, enables accuracy measurements that are easy to understand and straightforward to explain.

Follow this link to download our full whitepaper on measuring cash forecasting accuracy.

March 22, 2018

CashAnalytics Summary Series: ECB Economic Bulletin March 2018

The CashAnalytics Summary Series takes major Central Banks’ extensive reports (often well over 150 pages), and summarises them into 5 minute reads.

This release summarises the 2nd edition of the ECB Economic Bulletin for 2018, which was released on the 22nd March.

The key points covered in the report include:

  • Key ECB interest rates were unchanged and are expected to remain at present levels for “an extended period of time”.
  • The Governing council confirm the need for “an ample degree of monetary accommodation” to return inflation rates towards levels that are “below, but close to, 2%”.
  • The rate of global economic expansion strengthened in the second half of 2017, with resilient US real GDP growth.
  • Growth in the euro area was robust in Q4 2017, with real GDP rising by 0.6% quarter-on-quarter.
  • Net asset purchases are intended to continue at €30 billion per month until the end of September 2018 or beyond.

To read the summary of the ECB Economic Bulletin, please click here.

February 27, 2018

Cash flow metrics in focus

Cash-flow based metrics now feature prominently alongside traditional revenue measures of business performance in the key figures or financial summary pages of any public company.

On the financial summary page of its 2017 annual report, US supermarket giant Walmart listed operating cash flow and revenue as its financial key performance indicators. Indeed, cash-flow based metrics now feature prominently alongside traditional revenue measures of business performance in the key figures or financial summary pages of any public company. In the recent webcast accompanying Royal Dutch Shell’s 2017 results, CEO Ben van Beurden highlighted cash flow from operations and free cash flow as two of Shell’s three headline financial results – alongside revenue.

Activist Investors & Private Equity

While these cash flow KPIs aren’t new, their renewed prominence in recent years has been driven by investor appetite for simple, easy to interpret measures of financial performance. Private equity investors are well known for their focus on cash flow – using it as a primary measure of business performance and, ultimately, value. The increasingly active role investors are playing at a board room level in large public companies, alongside record levels of private investment and deal making, are two of the macro trends supporting this renewed focus on cash flow in most companies.

Strategic Input

Finance and treasury teams – seeking to better understand their own business, and contribute to strategic conversations happening in their organisation – are now using a range of cash flow-based metrics to measure and forecast profitability, valuation and efficiency KPIs on an ongoing basis. A short guide recently published by CashAnalytics outlines some of the most commonly used cash flow ratios and KPIs.

Cash Flow Profitability & Valuation KPIs

Any measure of cash flow profitability can be used to calculate these KPIs – the most commonly used being operating cash flow and free cash flow. Which one is more suitable will depend on the business and the audience. Some of the most common cash flow KPIs, using free cash flow as the basis, are:

Cash Flow Per Share

This is calculated by dividing free cash flow by the total number of outstanding shares in a company.
Free Cash Flow Per Share
This allows an investor to quickly understand how much of a company’s free cash flow can be attributed to their share-holding.

Cash Flow Yield

This is calculated by dividing free cash flow by market capitalisation or another measure of company value.
Cash Flow Yield Equation
This is a very simple way for both internal and external stakeholders to understand the cash flow return on a business, informing a range of investment, fundraising or asset sale decisions.

Cash Flow Margin

Cash flow margin is a measure of profitability calculated by dividing free cash flow by revenue.
Cash Flow Margin Equation
Reductions in cash flow margin can be a leading indicator of poor business performance or upcoming cash flow challenges. This is useful when presented alongside traditional operating and net margin figures, and is sometimes seen as the true measure of business profitability.

A Simple Basis for Comparison

While providing insight into the health and performance of a business, cash flow-based metrics allow for a simple comparison to the performance of other companies or industry benchmarks. Comparing cash flow-based metrics to those of competitors – leading companies in the industry or companies of a similar size – is a simple yet powerful way to benchmark performance and financial health. Consider including these industry comparisons in management reporting to ensure that cash flow is always in focus.

Follow this link to download the short guide on cash flow KPIs.

February 20, 2018

Launch of CashAnalytics Working Capital Monitor

We’re delighted to launch the CashAnalytics Working Capital Monitor which is an openly available resource on our website tracking the headline working capital KPIs for the world’s largest companies and most working capital-intensive industries.

The Working Capital Monitor Includes:

  • Working Capital KPIs for 350+ companies
  • Consolidated data for 50+ industries
  • DPO, DSO, DIO and CC tracked for all companies and industries
  • 10 years of data for all four KPIs

Our motivation behind developing and launching the Working Capital Monitor is to highlight working capital trends across a broad range of industries so that all companies can better plan for the future.

The world of cash and working capital management is highly interconnected and the actions of one company can directly impact the cash flow of a broad number of suppliers and customers. This in turn causes these companies them to adjust their future cash flow expectations and behaviour.

The Working Capital Monitor will be updated on a monthly basis with annual results release by companies in the monitor, released in the previous.

We hope you find it useful and welcome all feedback. Click here to access the monitor. 

February 15, 2018

Cash management is king: choosing the ideal cash management software solution

As the role of the corporate treasurer continues to become increasingly complex, many are turning to automation and software in a bid to keep on top of day-to-day tasks.

A common example is cash management software – a solution often turned to by time-pressed treasurers looking to improve efficiency, and security in an operating environment where organisations are facing cash management challenges daily.

Successful treasury cash management involves gaining clear visibility of the cash management situation so that the cash flow situation is known, liquidity can be enhanced, days in account receivables reduced, collection rates increased, and overall financial profitability boosted. All of the above can be helped with the right cash management solutions.

An effective cash management solution, or ‘payment factory’ enables an organisation to centralise, automate and streamline payments and cash management within business units or across an entire organisation. This results in improved operational efficiencies, mitigation of risk, greater cash visibility and reduction in costs.” According to Craig Jeffery, managing partner of Strategic Treasurer, the benefits of cash management software fall into each of the elements of the FIVEC model: flexibility, insight, visibility, efficiency, and control. Some key examples provided by Jeffery include:

  • Real-time visibility into your bank accounts anywhere in the world by country, currency, or bank. The best solutions offer connectivity to each of a client’s banks so that data can be pulled automatically from bank portals/systems as it becomes available and displayed centrally through a single interface.
  • Flexible dashboards that let management and operations view a) items that require attention b) limits and policy compliance c) risk levels d) custom views. These dashboards commonly include “drilldown” functionality that allows users to view additional information on any items of interest.
  • Automatic control of processes within the system; this can include security controls for reducing the risk of fraud, and control over specific workflows so that processes/dashboards/views can be customised to fit client preferences.
  • Powerful accounting logic reducing time required to support the recording process and cutting back on errors. Many leading cash management solutions can also easily integrate with a client’s back-office systems, such as an ERP, for streamlined reporting and accounting workflows.
  • Better risk management functionality – from gathering exposures, to executing trades and handling the reporting.

Selecting the right solution

The benefits of cash management systems are clear – so what steps can a company take to ensure they end up with the right software solution? “Start with the ultimate business case and business goals and work backwards,” says Conor Deegan, managing director, Cash Analytics. “The features offered by cash management software can be quite broad and therefore the benefits provided will depend on the exact use case. So, clearly define the top one, two or three things the new software solution must do and engage with vendors who have a clearly demonstrated offering and track records in these areas.

After this, you will want to see the product in action, understand how company specific requirements can be met while also getting an insight into how other clients of the vendor use the solution. “A full suite cash management solution will have payment, bank reporting and cash flow forecasting capabilities. The market demand is for better and more advanced analytics solutions, from all vendors. Simply automating a process is no longer good enough. Companies now want vendors to help them do things dramatically better than done in the past, not just slightly better.

Jeffery adds: “For any company seriously considering the adoption of a cash management solution, there are two primary questions that must be answered. “Firstly, what does my technology infrastructure need to look like so that my current requirements are met without jeopardising future developments and growth? This question requires treasury to consider both their current and future requirements. What functionalities and capabilities do I need now and in the foreseeable future, so we intentionally avoid creating systems that become obsolete in the short-term. “Secondly, who are the major players in the space and how do the vendors themselves compare to one another?

Once a firm has a solid understanding of both current and future state needs, they must then look at the vendor landscape and determine which solution provider is in the best position to meet their needs. “For effective research it is important to include multiple points of analysis. For instance, factors in focus should include areas of functionality, customer service structure, number of current clients, financial strength, cost and the trajectory for future growth and R&D. The benefits of adopting a solution depends on more than just the solution itself. Researching various elements of the landscape can help identify the right provider and solution.”

Software features

To help with choosing the ideal cash management solution, Marshall says there are several significant requirements for any cash management solution:

  • Secure sign-on and multi-factor authentication
  • Centralised real-time/intra-day statement reporting. This is becoming a key pre-requisite for corporates as end of day reporting is insufficient for today’s treasury functions
  • Multiple payment workflows – e.g. Bacs, local ACH, SEPA and connectivity to the various platforms.
  • Seamless integration with external systems and the transformation of different types of data
  • Cloud services – corporates are now looking for a complete outsourced service hosted on the vendors own infrastructure
  • Robust multi-bank connectivity
  • Full audit of all user/payment activities
  • Risk and compliance – Cyber Fraud & Risk Management tools increase organisational security giving central visibility into user behaviour across an organisation. Strict control around the payments and processing functions will help to reduce fraud losses and data theft. Effective sanctions screening also helps to ensure compliance with sanctions and anti-money laundering requirements

Ongoing support

As well as the features of the software solution, Deegan points out that it’s important for treasury departments to have access to effective ongoing support – and to look for this during the search for a suitable solution. “Business hours phone and email support from a vendor provided to all users of a system is now the industry norm,” he explains. “Service has become a huge part of software offerings and companies now have very high expectations regarding the service provided by their software partners.

From a technical perspective, Service Level Agreements (SLAs) should outline official response and resolution frameworks but in most instances, the customer should not need to reference an SLA due to the vendor taking a proactive approach to solving the problem.” 


February 08, 2018

CashAnalytics Summary Series: Bank of England Inflation Report February 2018

The CashAnalytics Summary Series takes major Central Banks’ extensive reports (often well over 150 pages), and summarises them into 5 minute reads.

This release summarises the Bank of England quarterly Inflation Report, which sets out the economic analysis and inflation projections that the Monetary Policy Committee uses to make its interest rate decisions. The report was released on the 8th February 2018.

The key points covered in the report include:

  • The MPC voted unanimously to keep Bank Rate at 0.5% at its most recent meeting.
  • Any future Bank Rate increases are expected to be at a gradual pace.
  • Inflation is expected to remain around 3% in the short term.
  • Developments relating to Brexit remain the most significant influence on the economic outlook.
  • The global economy is growing at its fastest pace in seven years, with expansion becoming increasingly broad-based and investment driven.

To read the summary of the Bank of England Inflation Report, please click here.

February 01, 2018

Four Conditions for High Value Cash Forecasting

Cash forecasting remains a challenge for most large companies, particularly those with complex operations covering multiple locations with cash flows in numerous currencies.

Treasurers and other finance executives strive to use the forecasts they generate to support high value, mission critical activities across their organisations.

Forecasts that are used for high value activity will need to be a supported by a high-quality data collection and reporting process. High value cash forecasting is used to support high value activity such as liquidity planning, foreign exchange hedging and investor reporting.

Types of cash forecasting process

Cash Forecasting Increase Value Over the years we have found that the forecasting processes in large companies typically fall into one of three categories:

1) Administration

Forecasting processes in this category tend to involve a lot of manual work such as spreadsheet consolidation and reporting. The data and reporting output is typically high level and prone to error.

2) Reporting

In this category, the focus of a forecasting process is to producing an output that is distributed outside of the head office treasury team and as such the focus is on reconciling with other reports generated within the organisation. Consolidation tools or other software solutions may be used to assist with parts of the process but the majority of time is still invested in manual tasks.

3) Decision Making

A focus on analysis characterises the most valuable forecasting processes we have worked on. Time is still invested in the overall process but the majority of this time is spent on data analysis and interrogation with the ultimate goal of gaining a crystal-clear understanding of future cash flows and requirements.

Four conditions necessary for high value cash forecasting

Moving from the administration category to the analysis category is the goal for most companies. The key question is, how is it done? High value analysis focused forecasting is a function of an environment that assists and supports the people providing information to the process. Therefore, the conditions created are central to the overall quality of the forecasts and the value the process ultimately provides. We have identified four key conditions necessary for high value cash forecasting. Cash Forecasting Success Loop 1. Accurate and reliable information input

Ultimately the value provided by any reporting process will be determined by the quality of data it produces which is dependent to a large extent by the quality of data input by people or gathered from other systems. A high value forecasting process produces a high-quality output by ensuring that the input is also of the highest quality.

2. Full meaningful engagement from participants

Accurate and reliable information input is to a large extent dependent on each business unit or subsidiary engaging in a meaningful way with the process. Gaining initial buy-in and ensuring ongoing engagement with a forecasting process can helped by:

  • Gaining visible executive sponsorship
  • Simplifying the process and the data input as much as possible
  • Highlighting the importance of forecasting to the organisation (the business case)

3. Appropriate tools, process and support

Forecasting can be a challenging task, even for seasoned practitioners. Providing support to the people contributing to the forecasting process while ensuring they have the tools necessary to contribute in the best way they can, will be critical to the ongoing success of the process.

4. Analysis, performance reviews and feedback

An emphasis on analysis is the key characteristic of a high value forecasting process. The analysis not only produces key insights that helps guide day to day to day decision making but is also used to create a “feedback loop” that continuously drives improvements in data quality. This feedback loop is the missing link in most forecasting processes.

This focus on support, efficiency and analysis lies at the heart of sustainable, high value forecasting in large organisations. You can download the CashAnalytics whitepaper on high value cash forecasting here.

January 24, 2018

Working capital in focus as interest rates rise

A decline in the return on capital employed of globally listed companies over the last decade has been noted in recent EY and PWC reports.

This is despite businesses taking an increased focus on balance sheets since the financial crisis in 2008.

Research published by PwC in 2016 reported that, despite considerable improvements during the financial crisis, companies’ global working capital performance has “progressively deteriorated” over the past 10 years – although small improvements were seen in 2014 and 2015.

However, in 2017 there were small signs of improvement in the UK. A 3% improvement in the cash-to-cash cycle of UK companies released £8.8bn which was previously tied up in working capital, according to Grant Thornton’s latest UK Working Capital Survey.

Since the financial crisis, UK companies have placed more focus on the health of their balance sheets, partly due to increased scrutiny on working capital by executives and investors.

This focus on company balance sheets will become increasingly important as the US, UK and Europe are all expected to see interest rate rises in 2018 following a prolonged period of historic lows.

“While cash and credit appear to be plentiful, both public markets and private investors now have a laser-like focus on cash and working capital based metrics,” Conor Deegan, director of CashAnalytics, tells GTNews.

“In the past, these metrics were used to gauge the efficiency of a company’s financial operations, but investors now monitor them as an early warning signal for future profitability and balance sheet issues,” he explains.

Grappling with shifting interest rates

In challenging markets, efficient working capital management can be used very effectively to free up cash within organisations. This cash can either be invested or used to reduce the company’s external funding needs.

“Ultimately, all of the facilities supporting working capital and supply chain finance come with a cost that is tied directly to interest rates,” comments Deegan.

“The expected increases in interest rates this year will increase the cost and, in some cases, call into question the viability of current working capital financing arrangements, particularly in lower margin industries where they are most relied upon,” he adds.

However, the current low interest rate environment means that companies have little to gain by investing excess cash in investment vehicles which pay little or no returns.

When struggling with trapped cash in a low interest rate environment, using internally generated cash to fund working capital is always the optimal solution, argues Deegan.

“Working with colleagues in local entities and in other departments such as tax to devise strategies to release trapped or unused cash, with the explicit purpose of funding working capital, will be a key activity in 2018,” he says.

“A working capital cycle that maximises the use of internally generated cash will ensure that the company’s operations are funded in the most efficient and cost-effective manner possible, while also allowing key metrics to be closely managed and predicted,” he adds.

How to monitor third-party working capital

Treasurers will need to stay up to speed with these changes and develop a full understanding of the working capital landscape so that they can provide insight and context to working capital discussions within their organisation.

Businesses not only need to stay on top of their own working capital but also that of suppliers, customers and the market in general when forecasting and building a picture of future liquidity requirements.

“The largest companies in the world have a huge impact on global working capital flows and understanding current metrics and long-term trends is an essential part of effective forecasting and planning,” explains Deegan.

CashAnalytics has launched an openly available online Working Capital Monitor through their website to help treasurers improve both their understanding of the broader working capital market and ultimately their business forecasting.

Aerospace and Defense Cash Conversion Cycle

The Working Capital Monitor contains 10 years of working capital information on over 350 of the largest companies in Europe and North America. Alongside this, it provides an analysis of close to 50 industries which provides a telling insight into broader market trends in each of the industries.

“We believe that data sits at the core of effective forecasting and planning. The Working Capital Monitor makes some this data easy to access and interpret for anyone with an interest in the area,” says Deegan.

The CashAnalytics Working Capital Monitor is the largest openly available resource focused on corporate working capital data available on the web today, according to Deegan.

The data is designed to be easy to understand and interpret for busy professionals seeking to gain insights to better understand the future cash flows, positions and requirements of all aspects of their business.


Working Capital Monitor

Monthly updated working capital of hundreds of industry leading companies

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