From the May Special Report issue of Treasury & Risk magazine

All Eyes on Cash

The push to improve cash-flow forecasts continues as companies gain visibility and push out their time frames.

Faster and farther seems to be the motto for treasurers these days when it comes to cash-flow forecasting, as companies work to achieve more timely visibility into their cash positions and extend their cash forecasts over a longer time horizon. Treasurers are getting a helping hand from advances in technology, including the cloud, and better ways to connect with their banks.

“In terms of optimizing cash forecasts, treasurers have been constrained by a couple of different things: one, the tools they’re using, and two, the difficulty in consolidating global information,” said Andrew Gelb, North America head of Treasury and Trade Solutions for Citi. “There are a range of tools, and there are a range of connectivity options as well, that enable better cash forecasting than perhaps would have been possible a few years ago.”

Companies’ increased focus on cash forecasting in recent years is generally linked to the financial crisis and the premium it placed on corporate liquidity. But a recent Treasury Strategies survey shows interest in forecasting has continued to grow even as the economy and access to credit have stabilized. Fifty percent of the executives the consulting company surveyed said they were increasing their reliance on cash forecasting, up from 40% in September 2012 and 39% in September 2011.

Anthony Carfang, partner and director of Treasury Strategies, argues that the increased emphasis on forecasting “comes down to one point and one point only: You have to go pretty far out on the yield curve to pick up any yield at all in this market. So you need a good forecast in order to determine if you have enough excess cash that you can go out that long.”

Companies have substantial cash holdings, reflecting their uncertainty about the outlook for the economy and regulations, which gives them the opportunity to invest some cash farther out the curve, Carfang said. “But you would never want to be in a situation where you invest and then had to liquidate before maturity,” he said. “Cash forecasting is your opportunity to figure out the odds of having to redeem something before it matures.”


One challenge for treasurers is knowing as quickly as possible what’s happening in the bank accounts they have around the world.

A recent survey conducted by Atlanta consulting company Strategic Treasurer and Bottomline Technologies, a New Hampshire-based provider of cloud-based payment and banking solutions, shows that about 60% of the companies surveyed say they have daily visibility into all of their bank accounts, up from just about 40% two years earlier. “That’s a real significant difference in the number of companies who have the ability to see where your cash is,” said Craig Jeffery, managing partner at Strategic Treasurer.

United Parcel Service, which delivers in more than 200 countries and territories and has more than 300 legal entities, achieved daily visibility into its bank accounts by using the connectivity provided by SWIFT, the global financial messaging network. Along the way, UPS pared the number of its bank accounts and realized considerable savings, said Ernie Caballero, vice president for EurAsia Mergers and Acquisitions and Treasury at $54 billion UPS.

UPS worked with a Citi project manager to get the company’s banks around the world to transmit SWIFT messages, a process that Caballero said took about a year. “It was a tremendous amount of work,” he said. “It just takes a lot of convincing.”

A small number of UPS’ banks still aren’t connected to SWIFT. “There are some obscure places in the world, for example, Nigeria, where 940 reporting is not possible,” Caballero said. “But that’s less than .05% of our total bank account inventory.”

Now the banks use SWIFT MT940 messages to report previous end-of-day account balances every day. The messages go to Citi, which aggregates the information and provides UPS with four files a day, two for Asia, one for Europe and one for the Western hemisphere, which are injected into the treasury management platform the company developed in-house and then linked to a global daily cash-flow forecasting process.

UPS has three regional treasury centers, in Singapore, London and Miami. Once the appropriate center approves the cash-flow forecasts for each of the legal entities in its jurisdiction, it pushes a button to execute wires that provide cash to entities that need it and sweep cash from entities that have an excess.

Over time, treasury has analyzed the data and worked to get the safety margins on how low a level of cash it’s possible to leave in accounts, Caballero said. “We get about 99.7% of our global poolable cash balances into our cash pool,” he said.

Longer Looks

Cindy Murray, Bank of America Merrill LynchCindy Murray, head of Global Treasury Product Platforms and eChannels at Bank of America Merrill Lynch, says companies are extending their forecasts to look farther into the future.

“Many of our clients are saying they can no longer just do the cash forecasting for the next three months or six months, they’re doing cash forecasting out to 12 months or 18 months,” said Murray, pictured at left. “That is a real challenge for our clients, the fact that they are being held accountable to forecast out longer, as well as being held accountable for the accuracy of their forecasts.”

The majority of B of A’s clients use treasury workstations, Murray said. “However, they also augment with Excel spreadsheets, doing different modeling to improve the accuracy of the numbers they’re presenting,” she said, and linked that in part to companies’ longer time frames for their forecasts, which involves a greater use of historic data.

B of A Merrill now offers CashPro Accelerate, a program that allows companies to use standard spreadsheets to build cash-flow forecasting models and automates the process of pulling bank data into the model and organizing the data. “It’s gotten a lot of great traction because they’re comfortable with Excel,” Murray said.

At Kinetic Concepts, a San Antonio-based medical technology company, corporate treasury manager Kassie Petrow has used CashPro Accelerate’s spreadsheet program to streamline cash forecasting for the company’s entities in 20 countries around the world.

The model that Petrow built pulls in data from the banks, matches the data up to her forecasts, calculates the variances and then revises the cash forecast. Petrow said CashPro Accelerate uses BAI codes to pull data from inside wires and populate the fields she has set up. “I can push a button, get that information uploaded and go through it,” she said. “I can do all that within 30 minutes, whereas it used to take me several hours a day.”

Strategic Treasurer’s Jeffery agreed that forecasting over a longer time frame can be difficult. “If it takes the same amount of energy to forecast 3 months or 12 months, it’s better to do 12,” he said, but noted that “the farther out you forecast, the harder it is unless you have appropriate tools that help you to manage that process.”

When it comes to time horizons, Hilton Worldwide has all the bases covered. The hotel company puts together multiple cash-flow forecasts, including a short-term forecast that goes out 13 weeks, as well as one-year and multiyear forecasts. Frederick Schacknies, assistant treasurer and vice president at Hilton, said each forecast has a different purpose.

“The short-term forecast is there to help inform decisions, say the timing on material investments or commitments of capital,” Schacknies said, adding that “we’re using the forecast increasingly for scenario analysis and that means it requires greater flexibility.”

Hilton reworked its cash forecasting processes after the economic downturn, bringing in outside experts to put together the short-term model, which runs on spreadsheets. “Basically it’s a classic 13-week receipt and disbursement format, but it’s got a fair amount of detail in it,” Schacknies said.

Now the company is in the midst of implementing a new treasury workstation and redeploying its ERP system. “Both of those projects will give us increased visibility into our cash flow,” Schacknies said.

Hilton operates close to 4,000 hotels in 90 countries and territories. “Forecasting for a company the size of Hilton is an enormous data management exercise,” Schacknies said. “There is tremendous complexity when you start looking across data for a company as large as we are in as many ways as you might need to.”


Companies that want to fine-tune their forecasts can turn to technology for help, and there are signs that they’re increasingly willing to do so. While businesses have been reluctant to untie the purse strings for such projects in recent years, the Treasury Strategies survey showed 35% of respondents this year say they expect to implement new cash management technology, up from 30% in September 2012 and 25% in September 2010.

Treasury Strategies’ Carfang said the newest treasury technology focuses on “gathering more data.” Information about a company’s counterparties, risks and currency exposures “are all part of a really robust treasury management system, but you also have better visibility into your supply chain and your distribution chain, and it’s those two that come together to form your cash forecast,” he said.

Carfang also pointed to advances in supply chain management that will contribute more certainty to cash forecasts.

If the company and its supplier include the date of payment in their negotiations, or the company uses an auction market for receivables, “you’re taking a variable—what day is the supplier going to pay me, is he going to give me a check or a wire, how long will it take to clear—and you’re replacing all of those unknowns with a deal that will have good funds show up in your bank account on the 17th,” he said.

When such arrangements exist, “what you have is more of a cash calendar than a cash forecast,” Carfang said.

B of A’s Cindy Murray cited the cloud as a positive development for cash forecasting, noting a trend toward clients’ using treasury management systems that are hosted or cloud-based. “Clients are viewing these solutions as more agile and the business can deploy them without leveraging their local IT department and infrastructure,” she said.

And Craig Jeffery of Strategic Treasurer noted the availability of “connectivity as a service, or CaaS, where you have a data aggregator (aka a SWIFT service bureau) connect to all of your banks whether they are members of SWIFT or not.

“They will consolidate all of the data and provide it in a format that can be used in your systems,” Jeffery said. “This is really important on the visibility front. You don’t have to establish and maintain connections to 20 banks, there are providers that will grab that data for you and handle the headaches.”

Bottomline Technologies’ Levine argued that moving to electronic payments can make a big difference in terms of forecasting.

“Sixty-five percent of all payments and almost 70% of all invoices in the US B2B supply chain are still on paper,” he noted. “Considering the time it takes to process a manual invoice and check payment, understanding cash flows becomes extremely difficult. And as organizations go international—and more and smaller organizations are moving to or already have international supply chains—it becomes more and more difficult to manage their liquidity in an efficient way.”

Levine stressed that there’s a gap between large corporations that have substantial resources and use sophisticated forecasting methods, and smaller companies. “There’s a whole world out there that’s just trying to understand where the money is that they use to pay their bills from day to day,” he said.

Whatever the size of company, treasury departments face the challenge of getting the information they need from other parts of the company. “It’s not just what the banks know, but what’s within my organization and the information I need within my own organization to improve that accuracy,” said B of A’s Murray.

Treasury Strategies’ Carfang warned that treasurers should also resist getting carried away.

“A mistake I see over and over again is companies strive to achieve a level of precision that requires an amount of data to achieve such that the cash forecasting process is no longer cost-effective,” Carfang said. “It costs more to collect and analyze the data than the decision you make is going to improve by.”


Read the May Special Report on Cash Management & Forecasting.

Countdown to SEPA
Cash Keeps Building at U.S. Companies
Accurate Forecasting: It's the Discipline that Matters
Effective Liquidity Management Drives Results

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