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Key cash flow forecasting tips and examples from the ACT Cash Management conference

At the Association of Corporate Treasurers cash management conference last week cash flow forecasting was mentioned in many different presentations. There was general agreement that corporate treasury has become much more proactive and has to be involved in cash flow forecasting. Many of the best tips and stories came from the excellent presentation by Latha Visvendran, Group Treasurer, Chemirng Group.

The best included:

  • each organisation's objectives for cash flow forecasting are different and are driven by their business model
  • bonuses need to be focused on cash flow and forecasts
  • the fact that a cash flow forecast is not perfect should not stop you striving for cost-effective accuracy
  • cash flow forecasts provide the starting point for supplier and customer payment terms
  • cash flow forecasting forces finance and senior management to be forward looking
  • cash flow forecasting services/tools need to be very flexible because business structures are forever changing. Latha Visvendran explained how they had used their TMS forecasting package, but had returned to spreadsheets because they needed the flexibility. Resetting the TMS forecsting package each year took too long. However, it depends on what business model as to which cash flow forecasting tools are appropriate
  • remember not everyone understands a cash movement from a non-cash movement in the Balance Sheet which can cause havoc with what information the business units provide for cash flow forecasts
  • don't forget that cash flow covers both the business units and the central departments which often have the biggest cash flows, e.g. dividends and interest, insurance and legal fees, tax and treasury, M&A funds flow
  • must provide feedback to subsidiaries and ask their opinion as to what has moved
  • dentify the key cash flow items, the pareto rule really works
  • if cash isn't being delivered, ask for recovery plans or status updates each week
  • if subsidiaries need funding, the cash flow forecast is often the early-warning signal and will allow time for the funding to put in place
  • secure support from across the business and involve the subsidiaries in developing the cash flow forecasting model and system
  • produce cash forecasts:
    • daily : 4 weeks out
    • weekly : 13 weeks out
    • monthly : 12 months out
    • and remember that they will have different levels of accuracy and will conflict with each. However, that doesn't mean you should stop doing them.

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Cash Flow Management & Forecasting
Cash Flow Forecasting