Cash-Flow Forecasting Still Vexing

Why is cash-flow forecasting still so frustrating for treasury departments?
Vincent RyanFebruary 14, 2017
Cash-Flow Forecasting Still Vexing

By now, one would think finance departments would have made some improvements to the all-important task of cash-flow forecasting. But this year’s Global Corporate Treasury Benchmarking survey by PwC suggests otherwise. While a vital function of the treasury department, cash-flow forecasting is still a challenge, the survey suggests, with more than half of 220 finance executives surveyed concerned about the accuracy of their forecasts, collecting forecast inputs on time, and the reliability of the systems and processes used to gather the data.

“Treasury forecasting is still a cumbersome, manual, and spreadsheet-based process involving many people from across the organization, resulting in monthly or quarterly, rather than weekly, updates,” said PwC in its report.

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According to the survey results, 53% of the respondents are still only updating cash flow forecasts monthly; 23% update them quarterly; and 15% update them weekly.

Forecast horizons vary: 27% forecast the current budget year, 25% the current quarter, and 19% the current month. Almost a quarter of respondents (22%) use a 12-month rolling forecast.

Concerns over the accuracy of forecasts may be related to the granularity of inputs. Most companies “have forecasting reports only at a consolidated level using monthly input numbers at the transaction type level,” explains PwC. “Less than 6% of the respondents make use of the inputs at the transactional level.”

money tapAnother factor is the all-important challenge of cash visibility. While daily visibility into bank account balances is better for many organizations than it was years ago, on average, respondents to the PwC survey said they have daily visibility on 71% of all bank accounts and 80% of their total cash balances.

“The bank accounts not visible are typically stand-alone accounts with local banks for which only local management has access,” says PwC. Not only are these accounts issues for forecasting purposes, says PwC, but “without visibility on balances and transactions, these accounts are potential targets for fraud and cyber criminality.”

For many companies, this problem won’t go away soon. On average, organizations are maintaining relationships with 7.7 core banks and 20.7 additional banks. They also have an average of 344 bank accounts with local banks.

“While more treasurers than ever before are fully controlling bank relationships across the enterprise,” says PwC, one-third of the survey respondents indicated they had no formal process in place related to bank relationships or that treasury had only a “passive role” in them.

One question the PwC survey fails to answer is, despite the questionable accuracy of cash-flow forecasting, do treasurers have forecasts that are accurate enough to make insightful business decisions? As well, as PwC notes, do the benefits of a highly accurate forecast outweigh the costs (and personnel hours) of getting it right?

Indeed, there are finance executives that highly doubt whether cash-flow forecasting can ever get any better than it is at present. “Some respondents tell us that, irrespective of the effort they might devote to this key process, they do not expect material improvement,” says PwC.

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