Cash & Liquidity ManagementCash ManagementCash ForecastingHow to forecast cash flow: what software should I use?

How to forecast cash flow: what software should I use?

A significant amount of resources go into the actual calculation of forward cash flows, including both objective and subjective analysis of the cash flow statement, that a number of companies have brought sophisticated cash flow forecasting software to market to provide organisations with the ability to more quickly and easily assess cash flows.

Forecasting cash flow is a crucial element to the treasury function, providing guidance on a corporate and business level, and allows a company to look at its capabilities – both current and in the future. The function of cash flow forecasting is of such importance to a firm’s understanding of how it stands, and how it will direct future investments and pay off debt obligations.

A significant amount of resources go into the actual calculation of forward cash flows, including both objective and subjective analysis of the cash flow statement, that a number of companies have brought sophisticated cash flow forecasting software to market to provide organisations with the ability to more quickly and easily assess cash flows. But choosing the correct package can be pivotal to a firm’s financial health.

Companies have, on the face of it, several options to consider when analysing what type of system to use. Larger firms – such as banks and the bigger investment firms – have developed their own, in-house packages they have tailor-made using external or internal technology and business consultants. This option provides the firm with the benefit of being able to build the system with to their own specific requirements, should they need them. Other firms buy so-called “white label” systems, in which they purchase software from a third party, implement it into their own systems, and sporadically buy updates as and when it requires. A third option is in entering the software as a service (Saas) market, in which a third party will supply software and its maintenance throughout the course of a contract with specific functions such as cash flow forecasting and risk management analysis.

And there are a variety of variables a company must weigh up when appraising which cash flow forecasting software packages to use. There are five primary functions a company will wish for from its cash flow forecasting system:

  1. Data collection and harmonisation

The software should pull together all relevant data from the various arms of the business – including the group level profit and lose and cash flow statements if that’s how the company is formed – collate, harmonise and present the data in a clear and reliable way that is understandable to the treasury managers. Cash flow management software’s ability to collate and harmonise data takes a huge strain off managers and those in the treasury department. Without automated systems, data can go missing or be difficult to find and schedule, and drain significant time and resources from the actual running of the various arms of the business. Using the correct software, a company can fully automate the process of data gathering, schedule for appropriate times at the company’s discretion, and position the data in a way that is simple and manageable for managers to assess. Here, the initial step of cash flow forecasting is made much more approachable.

  1. Systems

The right cash flow forecasting can be plugged into a number of different systems to pull in the correct and relevant data, but also to output it to relevant points for analysis and review. For instance, a multinational group may have a number of subsidiaries from which it will need to assess the volume of cash currently at its disposal. By linking up with each of the subsidiaries’ own cash management software systems, the group level executives can at any given time assess the cash flow situation, analyse it, and make determinations using their own system of the future state of the company’s cash flow. Further, those outputs at the group level can be used to tie in with decisions on future investment considerations – such as how much liquidity is likely to be in the firm’s system to service debt while expanding into new business areas. Here, the corporate level can more easily decide on the direction of the company.

  1. Analysis

The real value in a cash flow forecasting software application is in its ability to assess future short terms cash needs – such as debt obligations and payments. In the past, a company has expended huge resources in training treasury staff and management in being able to assess best cash flow practice to stretch future liabilities to the utmost of their use. With cash flow management software, the system should be able to automatically analysis the best financial and business options to stretch the worth of its cash while maintaining high levels of cash and short term funds to keep the company healthy and stable. By doing so, the system should present the firm with a variety of options, which can be selected based on the management’s current and future-anticipated risk appetite, and market conditions. Here, the software should allow the company to remove a number of unknowns and focus on steering itself toward its wider business goals with adequate cash goals.

  1. Centralisation

As suggested above, a good cash flow forecasting system should be able to pull together all relevant data at any given time from all the applicable sources for management to consult and analyse. By tying together the various streams, different corporate level departments and managers can make informed opinions on which options the business has at hand, and which they can and should pursue. The advantages of having relevant and analysable forward cash propositions without merely relying on the company’s cash flow statement should not go unappreciated, and many cash flow forecasting software systems on the market and built in-house are sold for this primary need.

  1. Treasury management systems

Tying cash forecasting software with more general treasury management systems is where software can really add value to a company’s data management. By doing so, the firm can quickly and easily make payment systems more efficient while allowing the software to do the job few humans could do and provide immediate feedback on how daily decisions have altered cash flow forecasts. While considering different systems, it’s crucial to consider each software’s ability to work with current systems, and if there are any potential flaws that could arise from two different systems being incompatible. Here, firms may be wise to bring in external third party consultants to oversee and review the purchase and implementation of the new systems.

A burgeoning market

There is a wide selection of cash flow forecasting and management software platforms on the market, so while a firm should pay great attention to its selection, there will be the perfect system for its requirements.

French bank, BNP Paribas, has a variety of Saas services that allow firms to plug into the bank’s propriety software. It’s cash management services and BNP Paribas Global Markets are just a couple of examples firms of all sizes globally have come to rely upon. Similarly, German multinational financial services provider, Deutsche Bank, has expanded its cash flow forecasting software in recent years. The bank services a large number of firms who rely upon it for full treasury management services. Smaller firms – such as financial software solutions provider Hans Orga – specialise in treasury and cash forecasting software, as does London-based treasury management systems provider Kyriba. Other firms exist that aim to provide niche treasury management packages such as cash forecasting and payment systems with wider business functionality such as Bottomline Technologies and Dublin-based cash flow forecasting software provider, CashAnalytics.

There is a huge range of products in the market offering many services, many of which may seem like the perfect answer to a company’s cash forecasting requirements. The number of options may seem daunting, but fortunately there is help at hand. A market has spawned in recent years of firms that offer consultation propositions in implementing cash management and treasury software selection and implementation, such as Strategic Treasurer and well-established financial information technology consultant Bellin.

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