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.