Gaining greater cash visibility continues to be a top concern for corporate treasurers. Members of the NeuGroup’s Treasurers’ Group of Thirty at their September meeting discussed ways in which they have improved processes and data quality to increase global forecasting accuracy.
One of the key takeaways was that the highest priorities remain the same. That is, when asked about the most important aspects of global cash forecasting now and in the future, members said improving liquidity management, and mitigating the effects of trapped cash.
To that end, members are using a variety of tools to help improve global cash forecasting, including upgrades to ERP or TMS systems and business unit education and engagement. As a result of the economic meltdown, most members agree that global cash forecasting has become a high priority within their organizations, with continued efforts placed on ways to further educate the business unit stakeholders on the importance of accurate cash forecasting.
Although most members agree that real-time reporting is best, they also acknowledge that 100 percent visibility isn’t always necessary, as most members will continue to have a roster of small banks that aren’t able to report balances real-time. It also may be that the cost to have that type of reporting from the smaller banks is prohibitive. Most agree the 80/20 rule comes into play here.
What’s your horizon?
One member of the group described his organization’s consolidated cash-flow forecasting process and the collaborative efforts employed throughout the company. The goal is to develop a five-year P&L through its annual strategic review cycle. This iterative process serves as the cornerstone for the long-range planning process within the company. This treasurer’s team then develops a five-year balance sheet and statement of cash flows that is used for tax planning, supply-chain planning and alliance management. The process has been adopted by the CFO and FP&A team as a source for cash-flow forecasting and plays an integral role in the company’s ability to offer investors five-year EPS guidance.
Another member described the three levels of forecasting currently done within her organization; there is a business forecast, the treasury/in-house bank operational forecast and forecast for the capital structures regionally. The company runs under a decentralized structure which, which the member cited as one of her biggest challenges when trying to compile accurate forecasting data. Treasury works to provide a three-year forecast with the mandate to protect the company’s A rating.
Visibility, efficiency and effectiveness are three important components to this company’s cash forecasting process, and it is continuing to look for ways to improve communications between corporate treasury and the decentralized business units within their organization.