Cash flow forecasting has been one of the main concerns in corporate treasury for many years, e.g. PwC in their latest benchmark study earlier this year concluded that, even with all the attention over the last decade, “True focus on cash flow forecasting is needed but remains a challenge,” and for most companies will remain so. Effective and “as accurate as practical” cash flow forecasting is very difficult and requires deep understanding of the dynamics of the business plus the ability/organisation to collect and manage all the data that is required.

Types of cash flow forecasting solutions

The types of cash flow forecasting solutions used by corporate treasury departments today are:

1. Manual/spreadsheet based forecasts in which the business units and other departments send their forecasts to the corporate treasury department who bring them together to form the company’s/the group’s overall forecast
2. TMS based forecasting systems bring together summary level data with the TMS cash flow forecasting data collection and aggregation. All the main TMS providers have some form of cash flow forecasting module, e.g. Kyriba’s approach to Cash Visibility includes a “a feedback loop to forecast sources supported by a detailed and flexible forecast variance analysis”
3. ERP and Business Intelligence systems all have some cash flow forecasting functionality, e.g. SAP Business One HANA Cash Flow Forecasting, Oracle’s Hyperion range of cash flow forecasting functionality
4. Specialist dedicated cash flow forecasting systems that “go the extra mile” to collect all the data and understand the dynamics of the cashflows based on their experience of some aspect of cash and treasury management, examples include:
   • Cash Analytics, who specialise on the cash flow and liquidity needs in a company
   • Cashforce who focus on the overall WCM needs and flows in a company
   • FiREapps who have used their FX exposure expertise and experience as the basis for their cash flow forecast solution.

FiREapps for Cashflow

FiREapps for Cash Flow deals with medium-long term planning and management of future revenue and expenses rather than focusing on liquidity planning / forecasting or short term cash / forecasting management. The six steps in creating and managing cash flow exposure management process in FiREapps for Cashflow are:

Source & Copyright©2017 - FiREapps

The key actions in the last three steps show the emphasis on FX exposures and hedging:

4 - Exposure Analysis & Reporting

• Automated tools to identify process or policy breaks
• Flexible exposure analysis

5 - Hedge Strategy & Decision Making

• Flexible definition of hedge strategy
• Systematic and auditable

6 - Trade Calculation & Execution

• Flexible definition of trading strategy
• Systematic and auditable

FiREapps  claim their Cash Flow solution - which is focused on medium-long term planning, and management of future revenue and expenses:

• Reduces: Currency volatility affecting your bottom line (EBITDA) by:
  • Improving forecast accuracy
  • Increasing confidence in hedging to a higher ratio
  • Eliminating process risk
• Improves: audit and compliance controls
• Reduces: costs by streamlining and automating processes by:
  • Automating the hedge decision process
  • Providing a single point of integration for Trading Platforms, Hedge Accounting Software and TMS, as figure below shows:

Source & Copyright©2017 - FiREapps

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CTMfile take: The various types of cash flow forecasting systems have very different focuses and offer varying levels of automation. Corporate treasury departments have to decide what is important to them: short term or medium-long term focus, FX or liquidity management emphasis, automation of the collection and aggregation, etc. Cash flow forecasting will always be difficult, but today cost-effective solutions are available that can meet your specific requirements.