Forecasting is a fundamental part of every successful treasury, and yet, in these challenging times, many departments are too pressed for time to gather and analyse the appropriate data quite as they’d like. The solution, says one highly experienced treasurer, is quite simple.

Given the importance of accurate and timely cash forecasting to the whole organisation, an outsider would be forgiven for thinking that every possible resource would be made available to ensure the right numbers are accessible as and when required.

But, as many treasurers will know to their frustration, even with the best will in the world there is often neither the time nor the means to gather that data, particularly for the short-term 12 or 13-week rolling forecasts typically derived from receipts or payments-based data.

Short-term treasury forecasts of this nature give a better operational view of cash than medium-term P&L-type forecasting that offers a more strategic view over 12 months or more. Indeed, short-term rolling forecasts should afford treasury a view that helps them manage their daily cash positions around key areas such as whether they are borrowing or depositing short term, and what currencies they are exposed to.

Ideal vs reality

The data required is ideally submitted in a timely manner by every company in the group and formed into a consolidated view. If executed well, treasury has a relatively early alert for any impending major incomings or outgoings, and attendant currency requirements. In its ideal form then, the treasury forecast is simply a better decision-management tool for the kind of daily cash positioning that most large companies undertake.

However, whilst the benefits of treasury forecasts based on short-term cash flow are manifold, the accuracy and timeliness of the data from which they are derived is frequently found wanting, says Carol Power, a corporate treasury consultant and interim treasurer of many years’ experience. That lack, she notes, can typically be traced back to a failing in organisational systems.

“Most treasuries are lean operations,” notes Power. “Without a decent solution to help manage the data processing aspect, treasury often finds itself being overwhelmed. Indeed, with many treasuries running on spreadsheets, harvesting and consolidating data on a weekly basis from 30, 40 or more group companies can be more than a little challenging.”

Expecting teams from other functions to continually update a rolling forecast is one thing; expecting someone in a lean treasury operation to drop all their regular pressing affairs to create a consolidated spreadsheet view of the entire enterprise, and then analyse the results, is quite another. As such, Power notes that the value of forecasting as a decision-making tool can often be overlooked in the clamour to get other vital day-to-day treasury tasks discharged. It’s all about prioritisation, she says, and cutting and pasting figures from multiple spreadsheets gathered from around the group does not often feature highly on the overworked treasurer’s agenda.

Business case

And yet being in a position to better manage cash and currency positions as a net borrower could serve to reduce interest costs. If treasury knows its cash positions precisely, it no longer needs to maintain a large cash buffer and can streamline its borrowing requirements.

Most corporates will have facilities with a degree of headroom; astute forecasting can thus lower that headroom, which in turn can reduce commitment fees payable to the bank for holding, what are in effect, unused facilities. “Treasury could unlock a real cost benefit,” says Power, “but ultimately, on a day-to-day basis, better forecasting means better financial decision-making.”

This suggests a clear business case for developing a systemic framework for managing treasury forecasting; it delivers process advantages and there is an additional benefit, says Power. In fact, the exchange of data, in a simple streamlined way, promotes a value-adding two-way engagement between treasury and the business units. A treasury that is unable, through time-constraints, to consolidate its forecasting data, will certainly not have time to analyse that data. This prevents it from subsequently communicating its findings to the business units.

It follows that being able to consolidate and analyse that data gives treasury a greater opportunity to help the other units better manage their own forecasting activities. This matters because failure to secure visibility over cash positions can, at best, lead to sub-optimal short-term cash and currency positions, resulting in higher interest costs and foreign exchange risk and, in extreme cases, insolvency.

Project thinking

Upgrading technology can bring about more accurate and timely forecasting, and for the treasury that has deployed a treasury management system (TMS) or ERP, logic dictates that the incumbent platform be used for this purpose.

However, Power sees a major issue potentially arising from the roll-out of TMS or ERP forecasting functionality to a large group. “It can quickly become a major systems project,” she comments, adding that such projects can quickly rack up the costs and the pressure on resources – not just on treasury but also on IT and the business units concerned.

New view

What may have seemed a logical step, suddenly morphs into a series of imponderables. But treasury has options, even for bread-and-butter activities like forecasting, says Power. “Rather than base it on a modified core platform, it is entirely possible to rapidly deploy a niche system.” The fintech market has perfected the building of specialist software, delivering and maintaining web-based solutions for a wider spread of users.

The software as a service (SaaS) delivery and licencing model is a proven and agile method of quickly and cost-effectively rolling out an application to multiple users. It allows centrally-hosted subscription-based services to be accessed using just a secure link and a password. Analyste CashForecast, a module within the company’s Trezone suite for treasuries, for example, sits on a remote server and, once configured, simply requires users across the business to login and upload their own cash data to share with the central treasury function.

With very little effort, a treasurer can view every position across the business as a consolidated report, with capacity to drill down to business-unit level. “It makes the decision-making process around short-term cash much improved,” remarks Power.

Having implemented Analyste CashForecast for a number of corporates – as both a standalone and ‘bolt-on’ core system module – she reveals that although principally a central treasury-led system, once configured, “it also becomes a tool for the business units to leverage for their own cash visibility needs”. The units have the option to upload data manually or automatically from their own systems.

Treasury can grant access to data and analysis so that each unit has full visibility over its own cash positions by business unit and by region or division as necessary. It is a distinct advantage for all if, when it comes to approaching central treasury for funding, each unit can do so in good time and with a complete set of supporting cash metrics.

Power of niche

Where once treasurers longed for a single platform in which they could do everything, there is perhaps a realisation that, as the pace of innovation continues unabated, adopting a select group of ‘best-of-breed’ systems may offer improved levels of performance. “It’s no longer such a big deal for a treasurer to log into a few different systems, especially when many SaaS solutions support single-sign-on,” notes Power.

With the treasury forecasting challenge now centring on getting the right data in a timely manner from the business units, a product that is easily launched, accessed and used with little or no training, is a genuine solution to that challenge. Analyste CashForecast is such a product, says Power. “It is not trying to do anything overly complicated because cash forecasting is not complicated,” she notes. Perhaps this is the secret of the success of niche products like Analyste CashForecast.

Of course, treasurers will understandably be sceptical about products marketed as ‘quick, easy, low-cost solutions’, says Power. “We’ve heard it all before.” But, with hard evidence to support such claims drawn from several interim assignments with major corporates, experience has shown her that Analyste CashForecast delivers.

Whilst other processes may justifiably clamour for the treasurer’s attention, Power understands that good forecasting is critical to the successful running of treasury. “Whether they have a core system or use spreadsheets, it is a fundamental, underlying, basic challenge that every corporate treasury has.”

It follows that if the process can be managed without fuss, bringing the business units closer to treasury, and vice versa, and enabling more effective decision-making across the organisation, then the power of niche solutions should not be overlooked.