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People Are the Key to Cash Forecasting

  • By Tom Hunt, CTP
  • Published: 11/8/2017

AFP-17_Magnus_Nov_748
Last month at AFP 2017, I hosted a well-attended panel discussion on treasury professionals’ perspectives on cash forecasting. We focused our discussion on several key themes: communication, business partnering and keeping it simple. One thing quickly became clear—to be effective at cash forecasting, you need to be able to rely on the people around you.

Takeaway #1
The majority of treasury departments use Excel for cash forecasting, and those forecasts tend to be in the one to three-month range.

We began with a couple audience polls to see if we could identify any trends in cash forecasting. What we learned was that it is fairly consistent among treasury departments. About 85 percent of attendees utilize Excel. Along with that, the majority of them utilize a one to three-month forecast.

Takeaway #2
Establishing cohesive relationships and maintaining good communication with other departments can vastly improve forecasting models.

Jennifer Dale, CTP, assistant treasurer for Sprint, described how important liquidity forecasting became when the ownership of the company changed, along with new changes in the C-suite. For Sprint, a focus on communication in the company remains key; treasury regularly meets with its working capital team, which is comprised of representatives from accounts receivable, accounts payable, payroll and other divisions to keep apprised of developments. They have used a similar forecasting model/spreadsheet for the past 15 years, but have made vast improvements over time in terms of data sources, finding the right drivers and working better internally for data gathering and collaboration.  

The format has proven very successful—Sprint is able to forecast down to 1-2 percent accuracy in the forecast—a marked improvement from the 5-6 percent variability they used to see. When managing large cash flows and balances through purchases of handheld devices from Apple and Samsung around new launches, accuracy is paramount for them.

John Dourdis, CTP, treasurer for Conair, is relatively new to his company but not new to treasury. He’s worked in treasury in multiple industries—airlines, waste management, food manufacturing and now small home appliances. For him, the challenge to overcome has been identifying the right people—establishing cohesive relationships with them and trusting that their assistance helps the company manage the balance sheet better and improves working capital management. Dourdis is in the process of building out his knowledge about the business and relies on his staff to help guide him through the process.

Takeaway #3
If an entity is reluctant to supply needed information for a forecast, your CFO may need to be called in to motivate those individuals who are loyal to other departments.

One attendee asked the panelists how they deal with an individual or an entity that doesn’t want to respond or supply the information. Dale and Dourdis both stated that the assistance and direction of the CFO are very helpful to motivate those that have loyalties to other parts of the organization. This is especially important when FTEs are often shared between controllers, the business and treasury in entities outside the United States.

Tom Hunt, CTP, is director of treasury services for AFP.

Treasury Technology and Security Controls
On January 23-24, examine the requirements of technology solutions and methods to define criteria. Discuss the reasons for upgrading technology, including the security and control surrounding payments and elsewhere within the treasury environment.
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