A maze of issues for the majority of treasurers

Most elements of a cash flow forecast are either stable or can be predicted more than 4 weeks in advance For example:

• Taxes
• Wages and Salaries
• Rent
• Loans/Leases​

​Two elements can be very unstable in the short term:

• Accounts Receivable
• Accounts Payable

The unstable elements can destroy the integrity of the entire forecast

• This can make it difficult to predict what will happen in the next week
• Stakeholders often do not understand or sympathise with the problem

​Reasons for a bad short term cash forecast

It can be a lot of work for a poor result

Lack of resources

• Many treasury departments are not staffed with enough experienced people to operate and manage cash flow forecasts
• This problem becomes more acute in larger organisations where short term cost is the priority

Difficult to compile data

• Most large corporations find it difficult to quickly compile all the required data from multiple businesses and ERPs

Wrong expectations

• Forecasts will never be 100% correct. How close you can get to perfection very much depends on specific circumstances

​Short Term AR and AP Issues

The first 4 weeks are the hardest to predict

Wrong algorithm

• Incorrect assumptions about the immediate future
• Not accounting for data variability. Data variability is largely driven by poor internal processes

Poor process

• Customers who pay late and erratically
• Cash allocation is not completed on the day of cash receipt
• Credit Limits are too low forcing customers to pay earlier than the usual pattern
• Supplier invoices are not booked or authorised on a timely basis
• Paying suppliers early

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