Given that an organization’s most precious liquid asset is cash, and that treasury owns it, accurate and efficient cash forecasting is vital for effective cash and liquidity management. It is also crucial for providing corporate treasurers with actionable insights into future cash flows.

Facing a slew of challenges over the last four years, corporate treasurers have continued to prioritise timely and reliable cash forecasting to make prudent financial decisions during uncertain and transformative times.

To optimise short-term cash, minimize the cost of funds, quickly adapt to changing business circumstances, and seize relevant opportunities, it is imperative for corporate treasurers to ask the right questions to make their cash forecasting practices more robust.

To help corporate treasury do so and better protect their cash, this article explores 10 pivotal questions that treasurers should pose and consider to improve cash forecasting proficiency and precision.

Here are the critical questions:

As a treasury leader:

1. Are you aware of the primary purpose of cash forecasting, and why you shouldn’t get trapped into reconciling cash forecasts and financial forecasts?

2. Have you identified and evaluated your data and data sources, and determined the forecasting horizon and forecasting tools that are best suited to support your organizational strategic goals?

3. Does your cash forecasting process depend upon a well-designed forecasting model, and is this model tailored to the objectives of your corporation and its business needs?

4. Do you validate and test your cash forecasting model, constantly monitor forecasting accuracies, and adjust where necessary?

5. Do you have a robust cash flow forecasting variance analysis process to detect inaccuracies and its causes, as well as improve the quality of future forecasts?

6. Are you effectively incorporating historical cash flow data into your forecasting model, as well as accounting for a large number of variables and the complex relationships between these variables?

7. Have you adapted your forecasting model to accommodate unusual or black swan events that may impact cash flows?

8. Do you adequately account for major one-off expenses in your cash forecasts and also establish materiality limits using professional discretion?

9. Have you clearly and effectively communicated the forecasting process and requirements to your treasury team. 

10. Have you potentially upgraded to advanced treasury technology systems or solutions, or explored the adoption of machine learning (ML) and artificial intelligence (AI) into your cash forecasting processes to enhance accuracy and adaptability?

By addressing these questions, treasurers can considerably harness the speed and accuracy of their cash forecasting capabilities, mitigate future risks, maximise return on investments, navigate the complexities of cash flow management, and position their corporations for long-term growth.

Beyond considering the essential cash concentration questions, you can gain further insights by exploring the leading practices for cash forecasting here.