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6 tips to get the gremlins out of your cash flow forecast

Short or long term, getting the right data for a cash flow forecast with a reasonable amount of accuracy is one of the key problems for corporate treasury. These six tips could improve your forecast.

Cash flow forecasts (CFFs) are vital in so many ways – whether they're used for risk management and hedging strategies, or to plan liquidity to avoid having excess or trapped cash on accounts. But forecasts are dependent on having accurate data flows from across the business and there are numerous obstacles or challenges that can put rather large gremlins in the CFF process.

  1. If business units are directly providing data on account balances, then reward the units for accuracy.
  2. Review the forecasting accuracy on a regular basis – then go back to business units to query when errors occur. Business units should also provide explanations when there are considerable changes in expected data.
  3. Invest in training staff in cash flow forecasting, both in the business units and in central treasury.
  4. It's important to use an automated system for CFFs – but this can be in the form of advanced spreadsheets or, preferably, a treasury management system (TMS) with cash forecasting functionality. Ideally, bank account balances should be imported automatically.
  5. Short-term forecasts should be based on detailed information from accounts payable and accounts receivable (AP/AR). Ensure there isn't a backlog in your company's invoice processing – this is one of the things that can skew CFF figures.
  6. Take into account seasonality in your business and try to build data on trends in seasonal cycles into the forecast. The same applies for wider industry trends.

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