Cash forecasting can be a valuable aid to the cash manager if it is prepared well and used properly. Where it is prepared badly, it can be a significant waste of time to all involved. In companies that make good use of cash forecasting it may be used as an aid for some, or all, of the following:
- to set borrowing limits and minimise cost of funds;
- to maximise interest earnings;
- for liquidity management;
- for foreign exchange risk management;
- for setting and monitoring longer term investment and funding strategies;
- for financial control;
- to monitor and set strategic objectives;
- for monitoring various lender and investor ratios;
- for budgeting for capital expenditure and project appraisal; and
- as a tool for working capital management.
