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May 22, 2014

Eurofinance 2014

Following on from our successful exhibition at the ACT conference in Glasgow last week we are delighted to announce that we will exhibiting at the Eurofinance International Cash and Treasury Management conference in Budapest in October. We will be exhibiting alongside the world’s leading banks, financial technology and consultancy firms in what is Europe’s largest treasury event.

This year’s Eurofinance conference focuses on the disruptive environment in which most treasury teams must now operate and how they can remain strategic partners to their business. CashAnalytics is an innovative software company dedicated to delivering cash forecasting and liquidity planning solutions that help treasurers manage risks and uncertainties while continuing to play a significant role in the growth of their organisations.

We look forward to meeting you there.

Conference Website: http://www.eurofinance.com/conferences/international-cash-treasury-management

Eurofinance 2014



May 12, 2014

ACT Conference 2014

We will among over 80 exhibitors and 1,000 finance and treasury professionals attending the ACT Conference in Glasgow starting on May 14th. Call by stand 6 in the main exhibition hall if you are interested in the areas of liquidity planning and cash flow forecasting. We would be happy to share our experience in the area and give you a look at the CashAnalytics cash forecasting solution.

March 02, 2014

Create Cash Flow Forecast

There are number of different ways to create cash flow forecast models. In this blog post we take a look at how to go about creating a cash flow forecast for the purposes of direct cash forecasting. A question we are often asked is how do you build or create cash flow forecast models? As a precursor to creating a cash flow forecast the starting point is to decide what the cash forecast will be used for. This may seem like a simple step but defining exactly what the cash forecasts will be used for allows a company to design a process that exactly meets their needs. For example a company seeking to gain visibility over quarter end covenant positions will need a different forecasting process from a company who wants to more closely manage debt repayments on a weekly basis. Here we take a look at the nuts and bolts of how a cash flow forecast is constructed.

Step 1 Source the opening balance

It might sound obvious but the starting point for a cash flow forecast is the opening balance. This is normally taken from the most up to date and accurate reflection of current positions, which is often a bank account or ERP position.

Step 2 Decide what receivables or cash inflows will be be included in the forecast

Anticipated sales receipts often comprise the starting point when building a picture of what the anticipated key cash inflows are, companies may break the sales receipts down by customers or keep a headline sales number. Sales projections can be built from the previous year, previous period, the sales forecast from the sales department or a combination of both. Other types of receivables to consider including are: • Intercompany Funding • Dividend Income • Proceeds of Divestments • Inflows from third parties etc.

Step 3 Decide what payments or cash outflows will be be included in the forecast

As per the examples given for receivables, the exact nature of the cash out flows will depend on the nature of your business. Items to consider capturing are: • Wages or Salaries • Rent • Investments • M&A • Bank Charges • Credit Payments

Step 4 Decide on the sources for the cash flow information

Once the key cash inflows and out flows have been decided, the next step is to understand where this information is to be sourced from. Normally in our experience, the key sources of information for cash flow forecasts distill down to bank accounts for opening balances, other systems and bank accounts for actual cash flows, other systems, historical trends, data modelling and people for forecast cash flows.

Step 5 Decide the forecasting time periods

Once you have decided on the main structure and key components of your forecast, another point to consider is what time period will the forecast cover and how often will the forecast be prepared. In terms of time frames, we generally come across three main types of forecast templates: Daily, Weekly or Monthly. A further sub type of template that we encounter is mixed period forecasts. For example a 12 month forecast could forecast for 8 weeks initially and 10 months thereafter. This approach ensures greater visibility around cash flows where it matters most.

February 26, 2014

What is a Cash Flow Forecast?

A cash flow forecast is a tool used by finance and treasury professionals to get a view of upcoming cash requirements across their company. The main purpose of cash flow forecasting is to assist with managing liquidity, the larger the company the more complex and challenging cash flow forecasting becomes.

In this post we look at the main components of a cash flow forecast, the importance of actual cash flow data and a number of different types of cash flow forecasts.

Components of a Cash Flow Forecast

In its simplest form, a cash flow forecast will show you where your cash balances will be at certain points in the future. This helps highlight when and where funding needs arise and allows you to take advantage of times when excess liquidity is available. A more comprehensive cash flow forecast will show you where your cash is right now, where it’ll be in the future and what will happen along the way (e.g. classified cash receipts and payments). Typically a cash forecast will contain some or all of the following components:

• Opening Balance for the period;
• Receipts – broken down by cash flow item/ classification;
• Total Receipts;
• Payments – again broken down by cash flow item;
• Total Payments;
• Net Movement – either by individual cash flow item or at a minimum total net movement.
• Closing balance for the period.

Broadly speaking, most cash forecasts will be structured as shown below. The image below shows a cross section of 13 week cash flow forecast:

13 Week Rolling Forecast Example

The cash flow items that make up the receipt and payment elements are unique to a company’s forecasting needs. For example some companies would track high level Accounts Payable / Accounts Receivable cash flows and other companies would break the cash flows down to the level of individual customers and suppliers.

Actual Cash Flow Data

As well as capturing forecasted positions, cash flow forecasts often also capture actual cash flows in the same model or template. In the example above left of the red line indicates that the cash flows are actuals. The benefits of capturing actuals in a cash forecasting process are:

1. It ensures that the projected cash flows are starting from the actual cash flow position.

2. Historic cash flow data provides a good basis for making future projections.

3. Capturing actual cash flows means that you can compare what was forecasted to what was actually received allowing you to analyse the accuracy of the previous forecasts.

Types of Cash Flow Forecasts

When setting up a cash flow forecast the first decision that needs to be made is how far into the future the forecast will look. This will be determined by business needs and the availability of information within your organisation. Generally there is a trade-off between availability of information and forecast duration. The longer the forecast the less detailed the forecast is likely to be.

• Short term forecasts are used to manage the day-to-day cash needs of a business. Typically they look a couple of weeks into the future and contain a daily breakdown of cash payments and receipts. A daily forecasting process would often include a degree of automation capturing cash flows from bank accounts and ERP systems.

• Medium term forecasts such as rolling 13 week cash flow forecasts are extremely useful from a liquidity planning perspective. The 13 week period is important as it gives a quarterly view for each submission.

• Longer term forecasts such as a 12 month forecast is often the starting point for a budgeting process and is an important tool for assessing the cash required for longer term growth strategies and capital projects. The benefits of a long term forecast need to be balanced against the dependability of forecasts over a long period of time.

• Mixed period forecasts involve a combination of time periods. For example, a forecast spanning six weeks in total could contain two weeks of a daily cash flows and four weeks of weekly cash flows. This approach ensures detailed visibility where it matters most. An example of a mixed period cash forecast is shown below. This example covers a period of four months where cash flows are captured weekly in the first two months and monthly thereafter.

Cash Flow Forecast


In most companies forecasts are collected on a weekly or monthly basis from business units. Forecasts can either be rolling or fixed term. A rolling cash flow forecast extends with each new submission and a fixed term forecast counts down to an end point such as quarter or year-end.


In summary, cash flow forecasts are the main tool used by companies for forward liquidity planning. Their format and duration vary depending on the exact nature of each businesses requirements.  Finance teams structure their cash forecasts depending on what makes sense for them and what is important for the Treasurer, CFO and ultimately the CEO. A robust and accurate cash flow forecasting process, where accountability is built in, is an indicator of strong fiscal discipline in a company.

January 28, 2014

Quantifying Bad Cash Forecasting

Cash forecasting is routinely acknowledged as one of the most challenging tasks managed by treasury teams today. For large multi-location companies it can be a resource intensive process that often yields little value. For treasurers seeking to improve their process or implement a new one, the first step must be to build a compelling business case which is used gain the required internal sponsorship for the project. Central to this business case is quantifying the impact of poor cash forecasting.

Does bad cash forecasting really have adverse consequences?
The simple answer is ‘yes’. Bad cash forecasting can have a very real financial impact on a business on a number of levels. Most notably failure to gain clear visibility of upcoming cash flows will result in the payment of excessive interest costs, business underinvestment and substandard risk management. The table below outlines examples of characteristics for each ‘cost area’ and highlights the potential business impact and return on investment (ROI):

Cash Analytics - bad cash forecasting

Quantifying Interest Costs
Reviewing interest costs is perhaps the most obvious place to start when trying to measure the impact of cash forecasting. For companies with external financing facilities this is a relatively straightforward exercise as they can simply use their average annual cost of funding to work out where savings can be made. For example, if a company with an average cost of funds of four percent could reduce their drawn debt facilities by an average of €10m over the course of year, this would shave almost €400,000 off their annual interest bill.

When building a business case, an argument can be made all the more powerful by anchoring expected savings in your company’s key performance indicators. Using the example above, if this company has a pre-tax profit margin of ten percent you can very quickly see that it would take an additional €4m of revenue to generate profit equivalent to the interest saving. Following this train of thought one step further and assuming that the company sells widgets for €2 each, one can show that it would take additional sales of two million units to generate the profit that can be saved by reducing average debt drawn by €10m. If the investment in cash forecasting is less than that necessary to increase sales by two million widgets, this should make a very compelling business case to the company’s chief financial officer (CFO).

Opportunity Costs
Writing in the New York Times in 2008, Warren Buffet opined that “today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value”. Unsurprisingly Mr Buffet has been proved right. The value of almost every asset class has rocketed since then, with the exception of cash. In this case he was talking about his own private portfolio but, to take another perspective on these comments, idle cash presents a significant opportunity cost to a business. Building a culture that focuses on sweating every euro, dollar or pound of cash generated by using cash forecasting to drive continuous business investment will ensure that cash is managed in the most efficient manner on a long term basis.

More often than not, reinvesting in the working capital is the most effective way to put spare cash to work. Pumping cash back into the business cycle ensures that the necessary capital is available to make the most of existing customer relationships, while remaining flexible enough to take advantage of new opportunities as they arise. Most businesses grow through a gradual increase in capacity supported by the availability of sufficient working capital. Similarly, funding capital expenditure projects using organically generated cash, as opposed to external financing, shortens the time to return on an investment while increasing the project’s ROI.

Business opportunity costs can be quickly quantified by analysing the breakdown of capital used to fund a recently completed investment project. Substitute cash that was either sitting idle or underinvested as a funding source instead of external debt and rerun the ROI calculation to see the effect of this more efficient form of project financing.

Unforeseen Risks 
The cost of an unexpected cash shock or liquidity crunch can be enormous. In some cases the benefits described above could be described as ‘nice to haves’ versus the absolute ‘need to have’ of a clear cash risk management strategy. Many boards will compel their management teams to implement a forecasting process as a component of their risk management strategy. This is a sensible strategy but a poorly managed forecasting process can, in certain cases, be more dangerous than having no process at all.

There are many examples of very real financial costs caused by problems with cash flow. For example, what would be the business impact of a withdrawn credit line due to an unexpected covenant breach? Or, how understanding would a key supplier be should a payment to them be missed or delayed? What effect would the loss of this supplier have on the company’s ability to service its customers? Ensuring that you have a clear understanding of the importance of cash to your business is the first step in designing an effective risk management strategy.

Conclusion: Creating Long Term Value 
Taking control of an existing process, or implementing a new cash forecasting process, can appear to be a daunting task; however, the benefits can greatly outweigh the effort required. Changing the negative perception of cash forecasting is certainly a challenge for treasurers, but over the longer term one that will generate significant value for their organisation. The first step in initiating the required changes is to build a business case with hard figures at its core.


October 29, 2013

Cash Flow Forecasting

Designing a new cash flow forecasting process or re-engineering an existing process to provide more value to an organisation can seem like a daunting task, particularly for large companies operating across numerous locations and in multiple currencies. The key challenges for treasurers operating a complex forecasting process include creating efficient lines of communication with business units and handling the excessive amounts of administration usually involved with managing forecasting in spread sheets.

Ahead of embarking on the implementation of a new cash forecasting process it is critically important to clearly define what the project is trying to achieve – its goals – and to clearly understand what factors will make cash forecasting successful in your organisation. Aligned with this, recognizing the current focus of a cash forecasting process is a critical step in designing a more valuable process.


Greenfield – What are we trying to achieve?
For companies seeking to implement a new cash forecasting process the first question that needs to be asked is “what exactly are we trying to achieve?” This sounds like a simple and quite obvious question but without identifying this at a very early stage the effort that is put into cash forecasting could be in vain. The most effective approach is to clearly define what the key reporting output and/ goals of the cash flow forecasting process will be and to implement a structure that can reliably meet these requirements. Table 1 below lists a number of common forecasting goals with suggestions on what type of process would help a company achieve these goals.

Cash Flow Forecasting

Existing process – understanding current focus
When a treasurer seeks to increase the value of their cash forecasting process they first need to uderstand the focus of their existing process and how much they want to change it. Broadly speaking the focus of cash forecasting is on one of three areas; administration, reporting or decision making. Table 2 below splits these focus areas into three “value levels” and outlines the headline characteristics of each.

Cash Flow Forecasting Value Levels

Moving the focus of cash forecasting up the value chain will require both investment and additional effort on behalf of all participant parties.

Cash Flow Forecasting Moving Value Levels


Cash Forecasting Success Loop
The success of a forecasting process is ultimately determined by the reliability and accuracy of the reporting output it generates. This success is dependent on a number of closely related factors that form what we call a “Cash Forecasting Success Loop”.

Cash Flow Forecasting Success Loop

1. Accurate and reliable information input: Like most data intensive processes, cash forecasting is subject to the “rubbish in – rubbish out” principle. This means that the quality and accuracy of the information input into process will determine the quality and accuracy of the final reporting output.

Reliability is also a major factor in the performance of a cash forecasting process. For most companies gaining visibility over cash movements on a group-wide basis is a key reporting requirement. Delayed or infrequent data submissions from business units will result in missing pieces of the forecasting puzzle which will have a knock on effect on the process as a whole.

2. Full meaningful engagement from participants: Accurate and reliable information input is to a large extent dependent on the each business unit and subsidiary engaging in a meaningful way with the process. Gaining the initial buy-in required to implement a process and then ensuring that it is engaged with in a meaningful way are two of the biggest challenges faced by treasurers when managing a new forecasting structure. Ignoring the fact that cash forecasting is, for the most part, a people intensive process and not spending sufficient time with business units to ensure that they understand the importance of forecasting to the organisation will have a detrimental impact on the effectiveness of the cash forecasting process. Methods to drive process engagement include gaining visible executive level sponsorship, providing training and carrying out regular performance reviews.

3. Appropriate tools, process and support: This area relates to the structure that is put in place at an operational level to support the efficient management of the forecasting process. The tools chosen to do this will ultimately depend on the goals of the overall process as well as the resources available. For example, take a company with 15 business units operating in 7 countries. If this company wanted to compile a cash flow forecast for their 3 year plan on a semi-annual or annual basis, using spread sheets to collect, consolidate and report information would more than likely suffice due to the infrequent nature of the reporting requirement. However, if the same company wanted to put in place a structure to forecast cash on short term basis such as daily or weekly, a system based solution would more than likely be required due to the amount of administration and potential for error associated with manual consolidation of a large amount of complex spread sheets on a regular basis.

4. Appropriate tools, process and support: The true value of cash flow forecasting lies in the analysis of information generated by the process. Understanding the nature and timing of cash movements will allow a company to unlock hidden value from their cash and working capital cycles while giving full visibility over upcoming cash requirements and exposures.

One of the key elements of successful cash flow forecasting is confidence. Unless a treasurer or cash manager trusts the cash flow forecast information they receive from business units they will not have the confidence required to make decisions that will improve the efficiency of the overall cash management process. Monitoring and measuring the performance of forecasts over a period of time is crucial to building this confidence and trust. Performance measurement will show how accurate forecasts have been versus actual cash movements and at which point forecasts become reliable (“we a good a forecasting up to three months into the future but after that the accuracy becomes a little sketchy”) and where improvement efforts should be focused. Feeding these findings back to business units so that they too understand the accuracy and reliability of their forecasts forms a key part of any performance improvement effort.


One of the key outputs of the initial stages of the cash forecasting implementation project is a simple short statement – one or two pages in length – outlining the goals and benefits of the new cash forecasting process and should include.

1. Summary of goals and business needs

2. Benefits of project to company

3. Expected impact on wider organisation

4. Proposed implementation milestones and timeframes

This statement will provide both the core of the overall cash forecasting project plan and a way to quickly communicate the goals and requirements of the process to all involved parties

May 23, 2013

Cash Forecasting

Efficient cash forecasting is essential in today’s challenging business environment. Achieving it is no easy feat as individuals across the organisation must actively contribute if the treasury department is to successfully manage the process. This article outlines how treasurers can achieve ‘buy-in’ from their colleagues and avoid the common pitfall of a lack of engagement with the cash forecasting procedure.

As the role of treasury grows within companies worldwide so does the need for treasurers and treasury teams to engage with a greater number of people, departments and subsidiaries across their organisations on a daily basis. One of the main drivers of this increased engagement is the requirement to have near ‘real-time’ visibility over cash positions and risk exposures which provide the basis for decisions made by treasurers and other finance executives. The ability of the treasury team to engage in an efficient and productive manner with a wide variety of people will have a large impact on the success of the decisions they make and the processes they manage

One process that is particularly reliant on information from multiple sources such as people in foreign business units and subsidiaries is cash flow forecasting. By its very nature cash forecasting in large multi-location companies is extremely challenging. One of the key stumbling blocks encountered when a treasury team attempts to implement a forecasting structure is gaining the buy-in required from all involved parties to get the process off the ground. Once initial buy-in has been achieved attention quickly turns to ensuring that the process is engaged with in a meaningful way on an on-going basis as this will ultimately determine the success of the process.

Butterfly Effect

Cash flow forecasting, for most companies, is an all or nothing task and issues caused by one business unit or problems that occur at a single point in the chain can have a disproportionally big impact on the process as a whole. When it comes to buy-in and process engagement there are three commonly encountered and closely related pain points that will resonate with anyone who is involved in managing a multi-location forecasting structure.

Lack of attention: By its very nature forecasting is a people intensive assignment that requires a large degree of care and attention. Nuances such as the timing of key customer cash receipts and payment-runs as well as the management of cash around reporting periods can only be factored into a forecast by the people with this specific domain knowledge. Failure by process participants to put the necessary time and effort into compiling individual business unit forecasts will compromise both the accuracy and reliability of the information on which decisions are made.

Submission delays: Even without factoring in possible reporting submission delays the cash forecasting process as a whole can be very time consuming due to the amount of manual administration and error checking involved. When submission delays are introduced into the equation and the inevitable time spent chasing up submissions is taken into account the process can, in some cases, become unmanageable.

Structure and control: Although initial spread sheet based forecasting templates are well defined a lack of control around the structure of those templates can empower participants to modify their template to suit their own needs. This causes administration and troubleshooting headaches for the central treasury function and can have a large time impact on the overall process.


Treasurers who want to increase buy-in to the forecast process and improve the way business units engage with it will need to lead by example. Attempting to manage a forecasting process in a ‘hands-off’ manner will doom it to failure before it gets off the ground. Taking the lead by opening up efficient lines of communication and clearly outlining the organisation’s forecasting goals form part of the early stage investment needed to generate future efficiency and accuracy benefits. Focusing on the areas outlined below when implementing a process should pay dividends in this regard.

Objective definition: Time should be taken to ensure the objectives of the process are clear and can be easily communicated. Support of a senior project sponsor at this early stage in the process can dramatically increase the likelihood of success.

As-Is analysis:This is a broad ranging exercise that involves building an understanding a company’s constraints, current processes and sources of information when it comes to cash forecasting. Building an understanding of these areas at an early stage allows for the design and implementation of the optimal cash forecasting process. Communicating with participants and gaining early feedback can help with subsequent buy-in and understanding especially if an unsuccessful initiative has been attempted in the past.

Requirement specification: A detailed specification should always be complied to define the exact needs and requirements of cash flow forecasting process. This will involve specifying key reporting outputs and understanding the level of detail needed to generate this output. This critical stage of the planning process sets the basis for all subsequent steps in establishing a valuable forecasting structure.

Communicate: As cash forecasting is a people intensive exercise the need for clear and continuous communication with participants is absolutely essential. In the early stages this will involve raising awareness of the importance of cash forecasting within the organisation as a whole and clearly outlining the role each contributor plays in it. Following this initial stage of dialogue it is crucial to keep clear lines of communication open at all times between head office and business units to ensure that the early investment in the process isn’t wasted.

Training: Assuming that all business units and contributing personnel have the requisite skills to effectively forecast cash movements is an easy mistake to make. The fact that cash flow reporting may be an alien task to process participants, who more than likely come from a pure accounting background, needs to be taken into account as this lack of knowledge may lead to a lack of engagement with the process itself. Some basic early stage training provided by either head office treasury or an external consulting firm will help overcome this challenge.

Value: The benefits of an effective cash forecasting process are well known. Clear visibility over upcoming cash flows, confidence in investing and borrowing decisions and reliable reporting are some of the goals treasurers strive towards. Sometimes, however, contributors to the process see it as a ‘black hole’ of information as a lot of time is spent compiling forecast cash flows but little value is received back in return. Making sure that all contributors to the process derive value from it will greatly improve engagement and safeguard its overall long term success.

At times the pressure to get a process, such as cash forecasting, in place quickly can lead to shortcuts being taken and oversights being made that will cause serious problems down the road. Ultimately the accuracy and reliability of the forecasts submitted by business units and generated at head office will determine the value a cash forecasting process provides to an organisation as a whole. Gaining early stage buy-in and achieving meaningful engagement are two of the primary ingredients that lay the foundation for this success.


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