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Mentality Change: Time to Rethink Cash Forecasting

  • By Robi Bahar
  • Published: 12/8/2015
turkeydayCorporate treasury has evolved over the years. Once a department that simply ensured that a company met its cash and FX requirements, treasury now analyzes and manages the financial risks a company may face, and plays a key role in delivering value.

There is often a perception that cash forecasting is solely a treasury task. However, in an environment such as Turkey, by only utilizing customer open items and their due dates—even incorporating statistical analysis—it can lead to inefficiencies in cash management between bank accounts. But what if there is another way?

Changing the cash forecasting mentality

Royal Dutch Shell Group has already migrated many of its operational activities to several business centers, geographically scattered across the globe. Accounts payable and accounts receivable are among those teams, providing support to operating units globally. This structure, which has been built on standard and simplified processes through common electronic platforms, targets operational excellence.   

In Turkey, many financial instruments used for collection cycles are still evolving. For instance, interbank direct debiting is not practically possible; the only available method to collect funds from clients via a direct debit system is to maintain an active account within the client’s bank. Therefore as a consequence, a multibank platform is still the common practice for corporates in Turkey. Within this framework, daily cash forecasting and the processes around payment and collection cycles present significant challenges, where corporate treasurers can find opportunities and add material value.  

To avoid inefficiency and add real value, the treasury team in Turkey acts as an integrator across several internal teams to materially improve the insights into expected cash flows. This approach was not as easy to implement; it required all teams to feel ownership for accurate cash forecasting, and brought responsibility on the shoulders of other functions, such as credit, accounts receivable and debt chasing.

Customers’ payment performance cannot be judged by treasury, but other teams, who are directly in touch with clients, have the required knowledge. With this approach, we have created an internal system that consists of a grading mechanism for customers based on their on-time payment performance. Just to avoid a potential misunderstanding, let me highlight here that this mentioned methodology is not the same as internal rates that are used for credit limits, granted to customers by the credit team. This grading mechanism, which is a regularly updated live tool, is not owned by the onshore treasury team, but instead by customer-facing teams. Nevertheless, it has become one of the core tools utilized by treasury for daily cash forecasting.

This new approach to cash management, which is focused on actual payment performance of clients, was run as a Lean Six Sigma Green Belt Project. It has provided positive and tangible results, directly impacting the bottom line, such as significantly avoiding overdraft charges and idle cash surpluses. Moreover, this transparent and open communication, attached with high-level collaboration among several different colleagues, has enabled the transformation of these teams from a process-end function to a key business partner in the business performance management cycle.

To summarize, improving what and how you process is a never-ending journey, where corporate treasurers can add concrete value. This is what we have proven by a mentality change and smooth collaboration in Turkey.  

Robi Bahar is the treasury manager for Shell & Turcas Petrol A.S., a downstream joint-venture company located in Turkey. 
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