Treasury Today Country Profiles in association with Citi

Cash flow forecasting: simplicity vs sophistication

Cash flow forecasting is consistently named as one of top priorities for treasurers, but at the same time it is one of the most frustrating tasks, mainly because of inaccurate and untimely reporting from subsidiaries and business units. Post-crisis it has become even more important for corporates to understand their cash positions and the associated liquidity risks. Can technology make it any easier? Most corporate forecasts remain spreadsheet-based, but will the new breed of forecasting technology finally unseat Excel and will it help gather more accurate data?


Cash flow forecasting has long been a priority of the treasury; the events of the financial crisis only served to cement the importance of its role within a healthy organisation. Yet despite treasurers accepting how important it is, very few treasuries have sophisticated software to help them complete the task. Various industry surveys state that around 70% of treasuries only use spreadsheets to forecast cash in and out of their company. With so many solutions available why are so few choosing to go down the automated route?

Simple vs sophisticated

Using software such as Microsoft’s Excel to calculate cash flow forecasts has been the treasury staple for some time now. Excel is competent enough for the treasury as its flexible nature means that it can be used in many different scenarios. It is the simplicity and low cost, in both purchase and maintenance, that has made it the most used software for forecasting. Andrew Langham, Cash Flow and Risk Manager at InBev UK is an example of one of the many corporates who uses spreadsheets. He says, “All of our forecasting is done through Excel, and last year we were on average around 90% accurate.”

However, spreadsheet accuracy levels will always be dependent on the human aspect of the data collection and input required, which is open to error. Treasury staff need to be aware as to who has inputted data and on what date at all times, which can be difficult as spreadsheets do not always have an ability to track changes. Langham also notes times when senior members of the treasury have been away that accuracy levels have dropped. This merely highlights the importance of experience when using spreadsheets.

In contrast to spreadsheets, sophisticated systems do not depend so much on the experience of the treasury staff. Systems are most often connected via the internet allowing subsidiaries to enter data required for forecasting into one database, which can be analysed centrally. All of the leading treasury vendors offer cash flow forecasting within their treasury systems. SunGard offers integrated cash flow forecasting with the CashPredictor integrated within its AvantGard product, which provides real-time visibility on cash positions globally in a user-friendly manner accessible to all treasury staff.

Wall Street Systems incorporate a cash flow forecasting system into their Wall Street Suite which enables functionality between business entities, and allows subsidiaries to submit the forecast directly to the treasury on a timely basis. Kyriba have web-based applications, such as KyribaTi that are available through partnered financial institutions, and offer cash flow forecasting and other treasury management solutions on the internet.

However without the right reporting tools initially, a TMS system is no better than using spreadsheets, as the data entered into the system may be unreliable. ERP systems, on the other hand, can provide a solution to the communication issues across a company that can affect the accuracy of the forecast. Langham says, “A decent ERP would be really helpful for our cash flow forecasting. I think an ERP, together with an appropriate reporting package, would be a good way to go as everybody would have a common platform to work on across the company.”

Both SAP and Oracle offer solutions which enable cash flow forecasting modules to sit with company-wide reporting modules, to allow quick analysis of enterprise wide cash positions. This can be beneficial to the treasurer who can access all necessary information before making forecasts.

Why keep using spreadsheets?

In a recent SEB survey, 59% of corporate treasurers stated that they planned to move away from using spreadsheets for forecasting cash flow and into sophisticated treasury systems or ERPs. However in the last three years there has been little movement (recent figures from the SEB poll show that corporates using spreadsheets have remained around the 70% mark for the last three years).

Other surveys show similar numbers. So, while there is a willingness to use technology, the dependable nature of spreadsheets is preventing many from taking the expensive and potentially difficult route to sophisticated software. As Langham points out, using spreadsheets can be a very accurate way of forecasting liquidity; providing data comes from good reporting.

Langham says, “I am not sure why the company decided against using a dedicated cash flow software tool. There have been a couple of studies over last ten years, and we have stayed with Excel as our results were better than most of the other InBev business units in Europe who do use dedicated software, and of course at much less cost. Cost is always a factor.”

As well as the low cost of maintaining spreadsheets, many corporates do not have the resources to train staff on new systems, whereas nearly every individual in the industry, whether in their first or last years, will have experience with Excel spreadsheets.


Regardless of the technology implemented, there are still some issues that need to be addressed when it comes to liquidity forecasts. One of the major factors that affect the accuracy of forecasts is the communication of inaccurate figures from departments and subsidiaries. Forty percent of respondents in the SEB survey noted these inaccurate figures as the single biggest challenge to cash flow forecasting.

In order for a forecast to be accurate the data provided from these parts of the organisation needs to not only be correct, but actually be communicated, “Our biggest issue is with communication. This can happen if somebody has decided to procure or cancel an order to the treasury,” Langham says, “and they just don’t tell you. For example if the people that are doing a capital expenditure project forget to let me know that they haven’t signed off on the project, the payment might be delayed for a month, and this changes vital figures in our forecast and affects accuracy.”

Costs of accuracy

Forecasting applications do not come cheaply.

One leading vendor explained that their product is “exclusive to the top few hundred corporates worldwide – those with complex treasury requirements that need to be simplified. The price also depends almost entirely on the client requirements and functionality.”

The high cost of purchasing a system, the implementation and training time as well as a lack of understanding for the importance of cash flow forecasting from many parts of the business reinforces a company’s views on sticking with spreadsheets. Langham says, “Unfortunately not everyone sees cash flow forecasting as being important. I’ve been doing it for a few years now, but when I first started, I was trying to explain to the board of directors why getting cash flow right was important, and one of them turned around and said, ‘Well why don’t you just get big enough bank facilities to cover every eventuality and then you can just ignore it?’ And I said, ‘Well who’s going to pay for them?’ I don’t think they realise that these things come at a cost!”

The case for specialised software is still open. The fact that very few treasurers have opted for standalone systems demonstrates that vendors need to justify their price, as spreadsheets are able to do an adequate job in the meantime. Clearly though, there are those within the industry that understand the benefits that a sophisticated system can bring to the treasury, but until there is a greater understanding in other areas of the company, the high investment required is going to be somewhat out of reach.