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Cash Forecasting: AFP Guide Has Best Practices, Case Studies

  • By Staff Writers
  • Published: 2012-10-02

Cash forecasting may be all about predicting a company's future cash flows, but for treasurers cash forecasting is all about the present.

That's because in today's volatile and uncertain environment, cash forecasting has never been more critical-or in demand, said Jason Torgler, vice president of strategy for Reval and contributor to the new AFP Guide to Strategic Global Cash Position Forecasting.

"Cash position forecasting is one of largest value-added functions a corporate treasury operation can perform," said Torgler. "It can have a tremendous hard and soft dollar impact on an organization. Accurate and confident cash flow forecasts can lower borrowing costs, increase yield, control volatility on foreign currency gains and losses, lower transaction fees, minimize credit and counterparty risk, assist in acquisition strategy and many, many others."

Given its importance, it's no surprise that other cash forecasting guides exist. What sets the AFP Guide apart from its competitors is its comprehensiveness. "It can serve as both a one-stop shop for launching a cash forecasting program and optimizing an existing cash forecasting program," said Torgler.

The AFP Guide includes:

  • Statistical techniques for cash forecasting
  • A step-by-step guide to building a cash forecast
  • Best practices in cash forecasting
  • Case studies provided by four corporate treasury departments-one domestic and three multinationals.

"A solid forecast allows for better strategic alignment with the CFO," Torgler said. "The CFO maps out the financial plan for the business. The cash forecast, and anticipated changes along the way, serve as a GPS for the working relationship between the treasurer and CFO."

In the process of writing the guide and interviewing the four corporates, Torgler, who has advised corporates on cash forecasting for 12 years, uncovered two new trends. First, organizations are committed to full, global visibility of worldwide cash balances-"the foundation required to begin forecasting," he said.

Second, treasury professionals are collaborating better with their business units. "Business units serve as a key input within the forecasting process," Torgler added.

3 Cash forecasting best practices

Corporates can click here to download the AFP Guide to Strategic Global Cash Position Forecasting.

In the meantime, Torgler offers three quick tips to improve cash forecasting:

  • Understand your vision for forecasting. "What is your goal?" Torgler said.
  • Expect variances. "Forecasts are never perfect."
  • Performance-test your forecast. "Understanding where variances are coming from is the first step toward correction."

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