Cash & Liquidity ManagementCash ManagementRecapture financial control using a daily cash forecast

Recapture financial control using a daily cash forecast

Adopting a daily cash flow forecast will benefit those businesses now existing on fine margins or working to tight working capital cycles

Aside from the handful to have flourished during the economic upheaval triggered by the pandemic, businesses will remain understandably cautious for the time being.

Treasurers, controllers, and anyone else responsible for financial planning won’t be living in an ongoing state of crisis management, but they need to maintain a laser-like focus on liquidity.

Excellent short-term liquidity planning, for example, is paramount, especially for those companies now existing on fine margins or operating under tightened working capital cycles.

Catalysts for the daily cash forecast

This task requires head office treasury and finance teams to assume a level of financial control that is reliably supported by a daily cash flow forecast.

Daily forecasts usually project cash and liquidity 30 days – though sometimes up to 60 – into the future.

The primary goal of daily cash flow forecasting is to help inform the reporting and analytical activities that ensure a business can comfortably meet all its short-term cash flow obligations.

Furthermore, in a situation as volatile as the one we now face, other factors could serve as an additional catalyst for a business to switch to a daily cash flow forecasting model. A new credit agreement, for instance, will possibly include a covenant stipulating that an organization’s total net cash position never goes overdrawn.

Moving to a revolving credit-line – or revolver – also generally leads to a greater emphasis on daily cash planning and forecasting to support loan drawdown and repayment decisions.

Internally, a business might conclude that the time required to produce longer-term forecasts is impacting its ability to make the prompt tactical cash management decisions.

Visibility, granularity, and accuracy

There is also the issue of visibility, particularly for large organisations. They may want an enhanced view of their group-wide cash positions so they can better track and manage cash flow and liquidity on a daily basis.

A daily cash forecast provides instant overhead visibility of daily bank balances on a subsidiary level and, as part of the centralised forecasting process, these subsidiaries can have their cash positions forecasted.

By its very nature, the daily forecast produces superior granularity than more extended projection periods, which delivers the kind of detailed guidance many investors and shareholders are now demanding.

Moreover, because data is primarily sourced from systems, the possibility of human error significantly decreases, while the daily forecast’s abbreviated time horizon ensures a comparatively high level of accuracy. The result is a vivid picture of current and projected short-term cash and liquidity positions.

Inside the daily cash forecast

The daily cash flow forecast is built bottom-up using a combination of customer receipts, intercompany flows, investing data, and capital expenditure. Akin to other cash and liquidity forecasts, it provides a high-level view of the underlying data.

The daily forecast is distinguishable from longer alternatives by the magnified granularity of individual line-items, which will display supplier and customer details in much greater detail.

Subsequently, it is significantly easier to track critical indicators such as key cash flow movements, short-term liquidity requirements, and, more broadly, working capital. Bank positions, meanwhile, are captured on a per-account basis, then aggregated into a consolidated view.

The case for automation

At first glance, the prospect of producing a group-wide daily cash flow forecast could appear daunting, even more so if a company is manually operating its existing forecasting model.

Daily cash forecasts, however, are driven by transaction data – generally sourced in ERP systems and banks – so producing one requires little human input. And so, a cash flow forecasting tool can be used to automatically create the daily forecast by automating the collection of data from the relevant systems.

Forecast automation by the numbers

  1. Data collection
  2. Forecast creation
  3. Consolidation and reporting
  4. Variance analysis
  5. Dashboards and management reporting

What’s more, automating the process of uploading data makes refreshing the forecast a non-issue, regardless of the required frequency. Data consolidation, too, is reduced to the touch of a button. There is scope to instantly drill down to the lowest level of detail in the cash reports that have been automatically generated and circulated to stakeholders.

There is the added bonus of not having to trawl through piles of spreadsheets to identify the underlying causes of forecast variances from across the business.

Finally, when the time comes to assess the liquidity and cash flow metrics that matter most to a business, headline KPIs will become extremely powerful if presented to stakeholders on a real-time cash flow dashboard.

CashAnalytics has helped multinationals across the globe to automate their cash and liquidity forecasting and reporting processes.

Whitepapers & Resources

2021 Transaction Banking Services Survey

Banking 2021 Transaction Banking Services Survey

CGI Transaction Banking Survey 2020

CGI Transaction Banking Survey 2020

TIS Sanction Screening Survey Report

Payments TIS Sanction Screening Survey Report

Enhancing your strategic position: Digitalization in Treasury

Payments Enhancing your strategic position: Digitalization in Treasury

Netting: An Immersive Guide to Global Reconciliation

Netting: An Immersive Guide to Global Reconciliation