Accuracy, control and efficiency are key drivers in today’s business environment. This also applies to the cash-flow-forecasting process.
Projecting your liquidity position is the first step in identifying potential cash shortfalls and improving how you use surplus cash. It can also help drive down dependency on short-term financing facilities by providing relevant and timely information on whether your organisation will have sufficient liquidity to meet its obligations.
Surely then, if you’re responsible for cash and liquidity management and you’re finding existing cash-forecasting tactics ineffective, reviewing why forecasting processes are underperforming is of utmost importance.
It is easy to understand why spreadsheets are one of the most commonly used tools for treasury and finance professionals when it comes to cash-flow forecasting.
With user-friendly features and nominal additional expenditure, other than your standard business operational software licence, they are also convenient. However, for large enterprise organisations that rely on cash-flow forecasts to plan investment strategies and make complex business decisions, they could be a potential liability.
Here are four reasons why you should consider alternatives to spreadsheets for your cash-flow-forecasting requirements.
Corporate treasurers and senior finance professionals have traditionally accepted manual processes, data gathering and administrative responsibilities as part and parcel of cash forecasting. Used to capture, track and reconcile data for years, spreadsheets have grown so complex, intertwined and widely used that treasury and finance professionals cannot figure out an alternative method for cash-flow forecasting.
For corporates with various banking relationships, multiple accounts across different banks and across multiple regions, this means almost half of their treasury analyst’s time can be spent on categorising actual cash flows from bank statement data.
While many would argue that there is a clear diagnosis for having a treasury management system (TMS), for some corporates, there simply may not be the budget to permit the investment.
Just because a TMS is not an option, however, doesn’t mean that automation is out of reach. There are other tactics, solutions and improvements that can be made to achieve similar, if not better, results.
Implementing a TMS can be an expensive solution, and for many treasury and finance professionals, having a full TMS has always been the nirvana. However, there’s more to treasury software than a TMS, and desired outcomes can be achieved far more cheaply than you would imagine.
With technological advancement, and the broad range of treasury and finance software now available in the market it is possible to meet the treasury and finance function’s unique needs with scalable, flexible treasury applications that you can purchase and implement, based on your timeline and resources.
Achieving your desired automation goals and specific treasury requirements no longer requires a large budget – all you need to understand is what treasury pain points you want to solve, identify the tools that can solve these for you, and then build a business case to justify the move from spreadsheets.
Spreadsheet errors can cause major problems for treasury and finance professionals, and using them continually is a risky decision for several reasons.
According to the European Spreadsheet Risks Interest Group, an organisation that deals specifically with spreadsheet errors, almost 90% of spreadsheets contain some form of error.
These errors range from data issues, with incorrect or missing information, to more complex formula and macros. The use of a flawed spreadsheet in a treasury or finance function can lead to incorrect decisions being made, which may have severe consequences. Strategic decisions could be based on the outputs from spreadsheets, and any fault or mistake could result in stakeholders losing trust with the treasury and finance function.
There’s no doubt that spreadsheets are convenient forecasting tools. And although they are very good at what they’re designed to do, they are not necessarily secure.
Internal and external fraud, cybersecurity, information security and data privacy are major concerns for organisations in today’s digital, data-driven world. Spreadsheets often are not constructed to include basic security mechanisms and have limited authentication measures (or none at all), features that are included in most leading treasury applications.
There are additional security problems, particularly in terms of the ease with which spreadsheets can be replicated and distributed. Essentially, anyone with access to a spreadsheet can duplicate it and email it to themselves.
Data encryption, multifactor authentication, sophisticated user-access controls and IP filtering are just some of the sophisticated security features that leading treasury applications incorporate as a means to thwart and eliminate rogue or illicit activity.
In conclusion, while spreadsheets remain a popular tool in treasury and finance, the risks around introducing errors and security plus their relative inefficiency compared to more up to date treasury solutions should always be kept in mind.
Nizam Yusuf is a finance and treasury writer and researcher at AccessPay, a cloud-based payments and cash management solution provider
