Current Trends in Treasury Cash-Flow Management

Effective forecasting is a powerful tool.

By Rob Ceske and Rob Wolf

Organizations are increasingly faced with a more complex and volatile business environment. The fallout from the recent financial crisis is still being felt thanks to unpredictable events, fluctuating financial markets, limited financing and investment options, changing regulatory and tax requirements, and overall economic uncertainty. 

In uncertain times, effective cash and related liquidity management practices can be essential to stay competitive, even surviving. Today’s challenging environment more than ever emphasizes the importance of effectively and accurately identifying, analyzing and managing cash flows on timely basis. 

Leading organizations widely acknowledge that forecasting is at the heart of the performance-management process, and is potentially a significant driver of business value and investor confidence. Here are some key elements of a successful cash-flow forecasting program and practices applied by leading organizations. 

No. 1: Commitment & Communication. Commitment from top company executives is crucial for an effective cash-management program. Only a shift in focus at the highest levels will enable forecasting to evolve, and the first step to changing the culture is to champion a realistic outlook of future performance.

Senior management should uphold forecasting as a means of enabling the business to manage the gap between targets and anticipated performance, rather than a means of resetting targets. In addition, executives are demanding honest forecasting that strips away traditional buffers and inflated assumptions so that true cash and liquidity position can be assessed.

The key is to improve communication to different parts of the enterprise so that business units understand the importance of cash forecasting and become partners in the process. 

No. 2: The Process Needs Fixing. Proper cash management begins with an efficient and effective cash forecasting framework, whereby business units frequently provide timely and accurate rolling (e.g., 13-week) information that considers not only historical cash inflows/outflows but also related data trends (including external market and governmental economic sources) and seasonality that can be used to reasonably predict the future. A central real-time overview of company-wide cash positions forms the basis for accurate strategic decisions. When supplemented by robust scenario planning and sensitivity analysis, and a focus on key business drivers, management creates a tool that can more effectively be used to manage liquidity risk and make more informed investment and debt-management decisions.

No. 3: Leverage Automation and Tools. Traditionally, spreadsheets have been the primary forecasting tool. However, technology now provides a platform for centralization, increased visibility to cash, and enhanced operational performance. Consolidated timely information allows for the elimination of idle cash, improved efficiency and tighter controls. Leveraging forecasting solutions (e.g., treasury workstations and Web-based platforms) and information technology (such as ERP systems) can automate manual forecasting tasks, contribute to optimal levels of liquidity, and provide transparent data.

Tools can enhance forecasting pro-cess, but there is still a need for quality data. Many organizations fail to improve the data quality, either by not fully understanding its source or by not taking time to scrub and analyze effectively. Technology alone is not the answer. Exploiting the capabilities of planning tools is critical to enabling an effective, reliable forecasting process.

No. 4: Enhanced Reporting and
Proper use of cash-manage-
ment dashboards, and robust management reporting and metrics (e.g., KPIs) to baseline your performance and track progress is crucial.

The right analytics and insights im-prove results, support innovation, help develop solutions and identify trends and opportunities. This is particularly true for companies that are net borrowers relying on varied financing options; they now have the ability to plan different scenarios to assess the impact of debt alternatives and cost.  

Typical cash-management KPIs can become part of a standard reporting and ongoing monitoring package that management can use to optimize working capital and identify opportunities to reduce costs and optimize cash flows. 

In our experience, very few organizations come within 5 percent of forecasts. Those that do generally involve operational managers more closely, feel more confident in forecasting skills, are more interested in scenario planning, make greater use of advanced technology, take forecasting more seriously, look to enhance quality beyond the basics, leverage information more effectively and, frankly, work harder at it.

So whether your most pressing issue involves financing future growth, new acquisitions or enhancing earnings, effective cash management can help you thrive, not just survive. Remember that forecasting matters: it hurts companies when they get it wrong.  

About the authors

Rob Ceske is a principal in advisory risk and capital management for KPMG.


P | 212.872.6670 

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Rob Wolf is an advisory leader in KPMG’s Kansas City office.


P | 816.802.5632

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