Most companies are not using automated systems to calculate their daily cash positions and forecast cash needs, according to a recent survey, and that status could leave them less able to manage their cash effectively when rates rise.
More than three quarters of the 150 corporate finance executives responding to a recent Reval survey said they are not calculating daily cash positions automatically, which likely results in less-than-real-time visibility and potentially inaccurate measurements.
Two thirds of respondents said their companies calculate cash positions daily, with 55 percent saying they use spread sheets to do that; 28 percent use ERP systems, 28 percent bank portals, 52 percent treasury management systems (TMSs), and 13 percent a combination of specialty tools.
Half of respondents said it takes up to an hour to calculate cash positions, while just under a quarter reported it taking up to 10 minutes, and the same portion said it takes up to one day. Although most respondents clearly are not using automated systems to make the calculation, 76 percent were either satisfied or very satisfied with their current methods, and another 19 percent were somewhat satisfied.
On the cash-forecasting front, 40 percent of respondents said they forecast cash on a monthly basis, with 39 percent doing so weekly, and 17 percent quarterly. A full 68 percent are using spreadsheets to do the forecasting, with 31 percent using ERP systems, 12 percent bank portals, 48 percent treasury management systems, and 16 percent a combination. It takes 61 percent of them up to a day to make the calculations, 23 percent up to a week, and only 9 percent up to 10 minutes. Nevertheless, 55 percent are satisfied with the quality of their current liquidity forecasts and 28 percent are somewhat satisfied, and 8 percent are very satisfied.
The high percentage of respondents who are at least satisfied with their current efforts to calculate cash positions and forecast cash needs suggests some complacency, as cash rich companies have had little need to count their pennies to pay bills. Tracey Ferguson Knight, director, solutions consulting at Reval, noted that calculating cash positions is relatively straightforward, although without an automated system inaccurate calculations may result, given foreign subsidiaries’ tendency to horde cash and underreport it.
More complicated is cash forecasting, and the high percentage of respondents whose companies are satisfied with their calculation methods suggests a complacency that could come back to haunt them when rates rise. Ms. Knight said most treasury management systems and other automated systems tend not to provide sufficiently broad functionality, whether it’s consolidating smaller forecasts into regional or global ones, or ‘what if’ scenarios to estimate the impact of rate or FX changes, leaving spreadsheets to fill in the gaps.
Companies with high levels of debt most likely track their cash positions and forecasts closely, but that may not be the case for cash-rich companies.
“There’s not a compelling need to forecast well or do it quickly, because they know they have enough cash to do what they need to do. And investing that cash now with rates so low means returns are pretty much the same all day long,” Ms. Knight said. She added that today it matters little whether cash is invested at 9:30 a.m. or 2 p.m., but 20 years ago there could be a difference of 50 basis points or more. In a higher rate environment, companies want to start the day with a preliminary outlook and then early on make their investment and/or borrowing decisions.
“For companies that haven’t been focused on that, higher rates may give them a surprise,” Ms. Knight said, adding, “Higher rates will bring a lot of changes, and now is the time for companies to really work to make sure they have the processes and pooling structures in place along with the technology to support them.”