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Cash & Working Capital

Creating a Cash Culture in the Company

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December 07, 2017

It’s important to raise awareness of cash and cash management with the company and upper management.

BenjaminsAt a fall meeting of NeuGroup’s Global Cash and Banking Group (GCBG), one member led a session on best practices in cash-flow forecasting — a frequent pain point for many treasuries. In doing so, the member described how his team was taking advantage of the integration of an acquired company to create a “new cash culture.”

The goals in creating that culture include raising the focus on cash awareness and management; improving visibility and forecast accuracy; and driving cash efficiencies and overall cash management performance. This member said the current budget will be the first where business units will provide targets on DSO, DPO and inventory levels to treasury and FP&A. And he noted the acquired company has a much different background and that the two teams “have a lot to learn from one another” as they build a compatible cash management process and infrastructure.

Changing a culture to improve cash forecasting requires better communication between treasury and business units and also involves educating the BUs on the importance and strategic value of getting this right. By getting it right, BUs can, for instance, help the company improve the predictability of EBITDA, increase currency exposure forecast accuracy, increase exposure transparency and reduce the cost of hedging. Thus, treasury needs to take command and drive the process to get everyone on board. The presenting member is now holding bi-weekly “cash calls” to talk through issues.

Another GCBG member said the process of getting BUs to take more ownership of the cash-forecasting process is made easier by highlighting teams internally who have top-performing forecasts, minimizing the feeling that the entire process is negative. In this vein, the presenter recommended setting achievable working capital targets with business units. Another member said the delicacy of the topic meant treasury needed to be sensitive in its dealings with other teams and to give feedback without coming across as overly critical. Don’t underestimate the power of socializing as a means of influencing the organization, the member said. The presenting member added that just from conversations, he found that some teams who should be collaborating were not. Discovering this helped the team avoid a lot of headaches down the line.

This building of business “intelligence,” along with adding strong analytics into cash-flow forecasting, is critical. According to pre-meeting survey results, some departments are accelerating progress by tapping into talent with quantitative skills in other departments. With just over one-third of responding members saying they only have a satisfactory cash-flow forecasting process, leveraging quants appears a sound strategy.

Treasury’s ability to improve cash visibility, efficiency and forecasting is often constrained by its dependence on business units for data and the ownership of the process by FP&A. Going forward, treasury can raise its profile with the CFO by taking the lead in improving communication with both business units and FP&A. Success depends in part on nuts-and-bolts processes like monitoring cash-related metrics and improving visibility gaps. But it will also require an openness to collaborating, finding quants and communication skills that go a long way to building trust and uncovering critical information.

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