automate where possible: use either sophisticated spreadsheets, but even better, a sophisticated web based application or use the functionalities of your Treasury Management System (and fine-tune it). So how could we get a timely and reliable CFFC process in place without using all precious time of the finance managers? However, as a treasurer, we realize the added value and need of it but also do realize that making a good CFFC could cost a lot of (time) effort. A CFFC helps to identify foreign exchange exposures and it supports hedging decisions.ĭepending on the turnover, leverage, growth, systems, number of employees, internationality and currencies, the approach (and time effort) should fit the size of the organisation.Ĭash flow forecasting often doesn’t have priority within organisations. In case of a “cash rich” position it helps you to decide how much money and for which period you could invest it the aggregated information shows if you are able to cover your financial obligations towards finance institutions/investors in the longer term and if your cash flow could meet the covenant targets or whether there will be a breach of credit facility limits. the analysis of forecasts versus forecast helps you to identify the trend and to understand the business much better. delay in invoicing to customers, late payments to suppliers) the analysis of actuals versus forecast helps you to identify possible problems (e.g. it can act as a management tool and “early warning system”. based on the CFFC you can assure the timely payment to your suppliers, employees and finance providers ( at all times as you want to avoid liquidity problems!). It provides you with an actual overview of the cash position and with a forecast. The Cash flow forecast (CFFC) estimates the timing and amounts of cash in- and outflows over a specific period and in different time buckets (day, week, month, year). TREASURY CASHFLOW FORECASTING HOW TO
This brings us to the question: how important is cash flow forecasting? How to anticipate adequately and to avoid facing “surprises” at the last moment and how should you implement it?
In recent years and months, we have seen quite a few companies coming into liquidity problems, leading in worst case scenario to insolvencies.
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