Cash & Liquidity ManagementCash forecasting helping to see corporates out of pandemic

Cash forecasting helping to see corporates out of pandemic

There is cautious optimism that the second part of 2021 will see a return to normalcy, the first half is still expected to be bumpy

Given economic pressures, organisations continue to closely monitor short term cash positions, relying on precise forecasts to maintain stability.

“A lot of our clients, when you think about forecasting, tend to look at 30, 60, or 90-day forecasts for the short term. Given the pandemic, corporates have taken an even shorter outlook in the range of one day to three weeks,” says Tarek Elyafi, managing director and head of Americas cash management sales at Standard Chartered.

“What corporates have done in 2020 is go very short term, basically reacting almost on a daily basis. In 2021, they will continue to do that and try to be more forward-thinking in improving their forecasting, improving their processes and implementing new tools. This is so that they can not just withstand additional pain, which will likely be there for the first six months for many, but to allow them to take advantage of opportunities as they show up.”

Gregory Russo, managing director, treasury operations at GE says: “Cash forecasting has been a data-driven exercise for some time. This has served us well in 2020.  However, we have had to be more agile with our planning and stay connected across functions to ensure multiple scenarios are accounted for.  Daily management is crucial to maintain flexibility.”

Treasury and finance departments that built up significant cash reserves early on are now starting to utilise their cash, says Elyafi. This is partly due to strengthening signs of economic normalcy, possibly due to recent news that vaccines will be widely available in 2021 and that better cash forecasting is giving them more confidence in future cash positions.

“We’re sitting on record amounts of cash for corporates,” says Elyafi. “With better forecasting, you don’t need as much cash, which means you can reduce your costs.  Corporates can invest their cash further out for the longer term to pickup potential yield, pay down debt or start re-investing for the future.

“By providing better forecasting, you can be more efficient with your cash. And you can potentially leverage that cash to take advantage of opportunities that come your way. It could be an acquisition, or through an investment, or by paying down debt.”

But 2021 is not going to be without its challenges. Though governments are issuing emergency approvals of vaccines that have been developed in record time, experts believe mass immunisation is still at least half a year away. With that in mind, Elyafi believes that 2021 will be a “tale of two halves” for organisations.

“The first half of the year will be about maintaining buffers, making sure they can withstand further downside risk. The second half, assuming the vaccine will be distributed effectively and we will have some level of normality coming back into the markets, corporates are going to take advantage of opportunities.”

Some firms are now relying on real-time cash forecasting and visibility through their bank’s web portal. Elyafi says that while there is a lot of interest in connecting bank APIs with a corporate’s ERP or TMS solution, much of that technology is still in its infancy and does not solve their immediate problems.

“Many of our clients, who primarily bank with us in some markets, are interested in just using our web platforms. We are also able to provide data through APIs to those clients who have the capabilities to interface with them. While we have seen many corporates have an interest in APIs; the reality on ground is that this bank connectivity is still relatively new so many corporates are still on the fence in terms of the true value add compared to say a host-to-host connection. Having said that, we have seen APIs take off in markets where there are real-time clearing infrastructures (these have grown from one ten years ago to availability in almost half our markets in Asia, Africa and the Middle East. In terms of real-time visual views and insights of cash that enable better cash forecasting, bank web platforms or treasury systems remain the preferred option for now.”

Of all the changes brought about by the pandemic, it seems new attitudes towards risk and liquidity management are here to stay.

“Everything that we’re doing is going to end up being permanent,” says Elyafi. “The lessons learned around forecasting, much like those learned during the 2008 financial crisis, will be a permanent change. Our digitalisation and forecasting investments will not go to waste.”

“Business continuity plans (BCPs) are key.  Our treasury teams globally have performed extremely well this year in unprecedented circumstances thanks in part to well thought out BCP planning,” Gregory adds.

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