A Treasurer's view: Automated cash flow forecasting is a game-changer

Having served as a corporate treasurer for multinational companies in Europe for more than 15 years, I have spent a fair share of time on the topic of cash flow forecasting. To that end, I know full well how important precise and timely cash flow forecasts are to enable a treasurer – regardless of company size – to effectively perform their job. This often includes ensuring sufficient working capital to support day-to-day activities, maximising cash returns, managing risk exposures while also helping to shape the organisation’s financial and investment decisions.

But factors like sector and business nuances, complex cash management workflows, as well as fragmented and large volumes of bank accounts across multiple entities, currencies, and countries in scope, can make corporate cash flow forecasting a highly complicated exercise.

This is often exacerbated by manual data collection from multiple sources and a lack of effective technology tools to effectively perform scenario analyses and planning. Indeed, even amongst large and sophisticated companies, a forecast may still run on Excel spreadsheets that will rely on lots of manual data input or manipulation, consuming time and effort as well as subjecting the process to human errors, which if left unrevised may significantly impact precision over time.

Never has accurate cash flow forecasting been more crucial than in today’s fast-changing geopolitical and macroeconomic environment. This is reflected in the 2023 survey conducted by the European Association of Corporate Treasurers where for the fourth consecutive year, cash flow forecasting was regarded as the top priority amongst treasurers for the coming 12 to 24 months.¹

While uncertainty is here to stay, the world is also becoming increasingly driven by data. As a result, treasurers need to invest in better cash forecasting and automated tools to gain insights into their cash flows and global liquidity, to improve overall risk management.

And with organisations today often operating with lean treasury teams, establishing an automated cash flow forecasting process that directly pulls transaction data from banking portals – can help teams free up time to focus on value-added tasks and provide actionable insights to reinforce treasury as a strategic partner to the business.

For U.S. tech-enabled services company, ServiceRocket, for example, cash flow forecasting required treasury team members to log on to many different banking platforms, download data and manually consolidate them into a single Excel spreadsheet to project cash flows. The process was cumbersome, inefficient, and difficult to maintain accurately, which hampered visibility into global cash positions. Petroleum company, Saudi Chevron Phillips Company, faced similar challenges due to the large number of multi-bank accounts held across its Middle Eastern entities. In the absence of an integrated and automated tool, it had been difficult to understand, predict and manage the root causes for deviations in its cash balances.

By adopting an automated solution that pulls liquidity reports from different banking providers, both companies have digitised and accelerated their forecasting processes to improve cash flow accuracy, enhance visibility and track forecasting of key performance indicators (KPIs), helping the companies make critical business decisions on future cash positions faster and with more confidence.

With the tool, the companies have also replaced traditional Excel-based processes that are prone to errors and lacked audit trails, to enhance risk management. The availability of reports and data visualisation tools also now allows treasury practitioners to work on more value-added variance analyses.

As record-high interest rates continue to drive up funding costs in today’s environment, treasurers are also increasingly seeking ways to optimise internal cash to reduce external borrowing. This was the case for an international engineering technology group headquartered in Asia, whereby low forecasting accuracy resulting from manual processes had not only heightened liquidity risk, but also increased reliance on external loans to meet day-to-day liquidity needs, consequently increasing expenses.

By leveraging a simple cash forecasting tool, the firm was able to project cash flows more accurately to improve overall liquidity management and lower external debt.

As companies continue to build and integrate various forms of data, levels of sophistication and forecasting accuracy will improve over time. Treasurers may be able to utilise predictive models – overlaying customer behaviour patterns with outstanding accounts receivables, for example, to gain better insights into forecasting their collections.

Treasurers can also use statistical and machine learning time-series models to predict cash flows, although these would require an end-to-end data-project approach involving the business, IT, and data scientists to develop, deploy and improve a customised model using internal and external data feeds.

In conclusion, forecasting cash flows through a single online banking platform, can help organisations increase transparency of future cash positions, ultimately simplifying the deployment of cash, help treasurers achieve their strategic mid-term to long-term goals, and more importantly, deliver strategic value to drive business growth.

Myriam Radi is a member of the Treasury Solutions Group for Global Payments Solutions at HSBC, where she provides thought leadership to clients. Prior to pursuing a banking career, she spent more than 15 years in corporate treasury, where she served as the European treasurer for multinational companies across various industries.