Cash forecasting is a crucial tool that allows corporate treasurers to better predict cash inflows, outflows and liquidity requirements. It is meant to optimize short-term cash and focuses on cash, capital expenditures, investments and debt. It also serves as an early warning system for potential cash shortfalls and enables organizations to seize relevant opportunities.

Analysts are overall pessimistic about overall economic growth, with concerns including ongoing supply chain bottlenecks amplified by geopolitical conflicts and climate change. The US Federal Reserve (Fed) is also expected to keep up its inflation-fighting efforts by raising interest rates once more in May. In light of all these concerns, treasury is continuing to put greater focus on cash forecasting so that prudent financial decisions can be made during uncertain and transformative times.

Prioritizing cash forecasting because treasurers are responsible for ownership and control of cash “Demonstrates that finance and treasury continue to change and adapt to the situation that surrounds them and are actively making the changes and progress needed to serve their organizations, protect their cash, manage their risks, and provide liquidity in the short and long terms”, according to the 2023 Treasury Perspectives Survey Report produced by Strategic Treasurer and underwritten by TD Bank.*

Over 350 respondents comprising treasury and finance professionals across North America, Latin and South America, Europe, Asia Pacific, the Middle East and Africa took this question-heavy survey in Q4 2022, offering their insights on vitally important and interesting topics, such as treasury technology use, economic outlook, payments innovation, security training, relationship management, credit access and regulation.

Cash forecasting reigns supreme for five years running

“This marks the fifth year that cash forecasting has been the top area that respondents spend the most time on”, observed the latest Treasury Perspectives Survey Report.

Source: 2023 Treasury Perspectives Survey Report

Treasury devoted more time to cash forecasting (60%) than any other area of cash and treasury management in the past year. The second spot that demanded the most attention was cash positioning and reporting (45%), followed by payment management (32%) and reconciliations and accounting (31%).

With liquidity at a premium, recession risk reignited by the recent bank failures, and the persistent squeeze from higher borrowing costs, corporate treasury is under pressure to improve cash forecasting accuracy and efficiency. This has resulted in a rising emphasis on automated cash forecasting.

Increased deployment of AI and ML for cash forecasting

More corporations are adopting artificial intelligence (AI) and machine learning (ML) forecasting capabilities within their existing systems to identify intricate cash usage patterns and establish a flexible, accurate, real-time, reliable cash forecasting process that can quickly adapt to changing business circumstances.

Integrating ML and AI into cash forecasting enhances the precision of forecasting operating cash inflows and outflows and helps ascertain the optimal level of operating liquidity necessary to accommodate fluctuations in working capital. Furthermore, ML and AI can refine the forecasting model and capture granular information, such as customer-level data for accounts receivable collections.

Given that cash forecasting begins with the mantra that cash is king, corporate treasurers manage and maintain daily cash flows, including the monitoring of group-wide bank account balances in a single place to determine the overall cash position. To do so, it is recommended that corporate treasurers connect with banking partners via modern, instant connectivity methods such as application programming interfaces (APIs). Maintaining corporate-to-bank connectivity through bank APIs ensures that treasurers can access high quality and reliable financial data consistently.

Additionally, this facilitates instant and secure flows of banking transaction and account data, allowing corporate treasurers to have complete visibility of the global cash position and enhancing their ability to forecast and manage cash flows with greater accuracy and speed.

Conclusion

As treasurers grapple with concerns around payment fraud and “The multitude of shifting factors at play in recent months, from geopolitical conflicts to inflation and interest rates”, as per the 2023 Treasury Perspectives Survey Report, it is easy to understand why “security and control over payments” is the top payment concern for most respondents and why cash forecasting, as an important element in proactive liquidity management, has occupied the most significant portion of treasury’s time for five consecutive years.

To learn about the in-depth viewpoints of treasury and finance professionals across multiple domains and regions and better understand leading challenges and opportunities in times of slowing economic growth, we recommend corporate treasury executives download, review and benefit from the report.

 

*Strategic Treasurer owns CTMfile.