A formalised cash forecasting process can bring huge benefits to your cash management, potentially adding 30bps of added return to a portfolio. Survey results indicate that many treasurers are frustrated with their cashflow forecasting – 40% identified it as a leading cause of excess cash balances. The most common pitfalls in forecasting are limited resources; inaccurate/insufficient cashflow data; and process design flaws. Successful forecasting calls for solid data collection; consistent methodologies; a process to analyse variances; and effective reporting mechanisms. The three most commonly used forecasting methodologies – balance sheet forecasts; statistical models and receipts and disbursement forecasts – have their own strengths and weaknesses that lend them to specific situations. A cash forecasting process must validate projections against results; understand current variances; and determine how the forecast can be improved.
