Cash forecasting and technology spend: a look back at 2016

The 2016 Annual Cash Forecasting & Technology Spend survey, the seventh year that the survey has been undertaken by US treasury consulting firm Strategic Treasurer and underwritten by software provider Bottomline Technologies, was taken by over 150 corporate treasury practitioners. Of these respondents, 91% had North American operations and 70% had operations in Europe, the Middle East and Africa (EMEA). Approximately 75% of survey respondents operated in more than one country. The 2016 survey shows that the multi-year trend of highly elevated spending plans for treasury, payments and bank account management remains intact.

Treasury aggregation use, multi-bank reporting and payment hub services continue to gain traction in mid to large-sized corporates, and the key drivers for payments and treasury technology spend are, firstly, visibility to cash and other assets/exposures and secondly, accuracy and efficiency.

The survey covered the practices and plans of corporations with regard to cash forecasting, cash visibility, the use of SWIFT and aggregation services, technology spend, and key drivers for these disciplines. Many of the survey questions have a three-to-seven-year history, which enables insight through a long view into trends.

The following summarises several interesting discoveries and key points identified within each survey section.

• Cash forecasting – banking environment adds complexity: The number of banks and total bank accounts are two key indicators of an organisation’s complexity. For a significant majority of survey respondents, there are large numbers of banks and bank accounts both domestically and globally. Generally, the more banks and accounts an organisation has, the higher level of difficulty for accurate forecasting.
  • Domestic banks. 33% of firms use between six and 10 or 10+ banks domestically.
  • International banks. 44% of firms use between six and 10 or 10+ banks internationally.
  • Bank accounts. 26% of firms had over 500 bank accounts with 12% having over 1,000.

• Cash positioning updates sought daily: The percentage of firms wishing to see their cash position information on a real-time or daily basis has remained fairly consistent for the past four years. In 2016, 32% of firms wanted this information on a real-time basis while an additional 49% desired it daily. Thus, four out of five firms have a desire for complete, current information about their global cash position. Given the number of banks and bank accounts these organisations have, achieving this goal requires the right type of technology and banking structure.

• Forecasting – frequent and long. Most companies update their cash forecast at least every week and more than 40% forecast at least six months into the future.
  • Forecasting frequency. 35% of firms forecast daily, and an additional 25% forecast weekly.
  • Forecasting length. 43% of firms will forecast more than six months into the future, while 27% forecast two to five months ahead.

• Forecasting accuracy is a mixed bag: By receiving accounts payable and accounts receivable (AP/AR) information, many organisations are hoping to improve their forecasts. While getting this information helps, not everyone is able to achieve highly accurate forecasts as a result. A significant minority of firms are experiencing challenges and have areas where improvement is needed.
  • Always accurate. 6% of firms indicated their forecasts are always accurate.
  • Almost always accurate. An additional 18% of respondents indicated almost always accurate forecasts.
  • Never, rarely and sometimes accurate. A significant portion of firms (38%) indicated their forecasts were either never, rarely, or only sometimes accurate.

• Forecasting analysis is infrequently automated: Only one in nine organisations has a fully automated process for managing their forecast variances, which demonstrates a surprising lack of efficiency in this area. On a more positive note, over half of organisations measure variances on both a cash balance and cash flow basis.
  • Variance analysis. 11% are fully automated. 19% forecast but don’t analyse any variances between their forecast and actual results.
  • Measure variance analysis. 56% of firms measure variances on both a cash balance and cash flow basis. This is significantly higher than the figure of 45% in the 2015 survey.

• SWIFT awareness grows: This year saw the highest level of self-identified corporate SWIFT awareness, with a notable increase over 2015, when 47% of respondents indicated they were aware of SWIFT and their services, increasing to 56% of respondents in 2016.

• Massive investment plans in treasury technology. Respondents indicated three primary areas of significantly elevated spending plans. Plans to invest in treasury systems, bank account management functionality, and payments technology are at very high levels, with 27% – 41% of organisations planning to spend significantly on these areas within the next year. This appears to reflect the demands placed on organisations in recent years and represents good news for vendors providing these solution sets. It also represents an area where organisations need to be cautious, as the implementation teams of these technology providers will be stretched with multiple ongoing projects.
  • Even with payments spend showing a multi-year decline, the fact that 27% of organisations plan to spend heavily still leaves this category at a highly elevated status. Moreover, given the recent developments in various faster payment initiatives, more organisations will see the need to invest in this area in the near future. Thus, this can be seen as a low-point for payments in the six-year period from 2014-2019. This wane in the demand for payments technology should represent an opportunity for organisations to move forward with a payment project before resources become strained for payment vendors.

• Visibility and accuracy/efficiency are the top drivers for investments made in treasury and payments technology: The top two reasons organisations plan to spend heavily on payments and treasury systems are: firstly, visibility to cash and other assets/exposures at 59%, and secondly, accuracy and efficiency (with regards to internal costs) at 54%. Other reasons polled substantially lower.

Conclusion

In order to further contextualise the results of the latest survey, the authors have identified three primary takeaways that flow from the data and the overall treasury environment for most corporations.

1. Plan for more time and help on treasury projects. The current demand for treasury technology is extremely elevated, which means vendor resources will be stretched. Organisations considering a project should plan for the process to take more time and consider adding additional resources internally or via a consultancy to keep plans on track.
2. If you don’t have treasury aggregation or payments under control, this is an ideal time to start. Multi-bank reporting and payment hub capabilities are a key driver behind many projects in the payments arena, and we are in the middle of a six-year low point in the demand. The demand will certainly increase in the near future, making it harder to complete your projects.
3. Benchmarking forecasting practices and results. For those organisations seeking to improve their forecasting practices and results, it is both helpful and appropriate to gauge your current position against what other comparable firms are doing and experiencing. This is a helpful method for identifying areas in need of adjustment and improving the accuracy of your overall forecasting process.