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The Short Term Cash Forecast Problem

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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
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​Short Term AR and AP Issues

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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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