Cash & Working CapitalTechnology

DIY: Improved Cash Forecasting and Visibility With In-house Tools

By August 13, 2020 No Comments

A cash awareness culture results in better forecasting of future flows to support growth.

Young tech companies thriving in the latter stages of a multi-year economic expansion when many investors had lots of cash to deploy can be forgiven for not always demonstrating disciplined cash preservation.

  • “We are cash rich and our culture is not sensitive to cash,” as one member put it during a discussion of cash positioning and forecasting at a recent meeting of the Tech20 High Growth Edition.
  • But as companies grow and confront crises like COVID-19, they need to take a hard look at liquidity.

“You make it, we take it.” Awareness of cash generation, how cash moves through the company and who’s entitled to control it is an issue of corporate culture and education.

  • Just because treasury can lay down the law on owning the cash, clear communication on events that impact cash doesn’t spring up naturally. Treasury needs to develop the relationships to ensure that this communication is efficient.

Treasury technology: critical for scaling. Good technology goes a long way to bridge some of the communication gaps regarding cash-related events between business units and treasury.

  • Just over half of the companies participating in a short TMS survey reported having a TMS in place, while over a quarter have none and the rest use some variety of an in-house solution. One member said the decision to implement a TMS four years ago felt “early,” but that a TMS would be critical for scaling.

Cash positioning. For one member company, the culture is to “drink your own champagne” before seeking outside solutions. 

  • The company’s treasurer has worked with product development to bring more discipline and accuracy to cash positioning.
  • Some groundwork was already done, like direct bank integration for payroll, general ledger and accounts payable with its two main partner banks. This information goes to accounting but “we created a new security structure for the treasury team to use the same data but a ‘different lens’ without needing to go to bank portals and download,” the treasurer said.
  • This produces a daily global cash position dashboard showing 95% of ending domestic and international balances by legal entity, currency and financial institution.
  • It shows money market funds, fixed income balances from third parties, reflecting all transactions from the prior day, coded by type of accounts (ZBA, intercompany, etc.) and type of transactions.
  • If a new type of transaction occurs, it can be coded for automatic recognition going forward. “This is very handy in a pandemic when you get questions from the CFO about cash.”

Cash forecasting. With limited budgets and time for systems implementations, what do you do? One member, a data visualization company, looks at how its own product can be used.

  • The company has a large financial master data warehouse (using a big vendor in that space) with data around each legal entity, bank partners, bank accounts, categorization rules, account signers, etc.
  • It has several years of balances organized by categories and sub-categories like accounts payable, receivables, rent and tax, and allows the ability to drill down into cross-border FX and other types of transactions.
  • Treasury looks at forecasting on an individual account level and then a roll-up, and can do a 14-day daily view and an 11-week weekly view—and of course uses the historical data for a sanity check on the forecast.
  • FP&A forecasts on accrual basis and treasury on cash basis. “They rely on us for the cash forecast and we rely on them for revenues and expenses.” The company reports accuracy of more than 90%. 
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Antony Michels

Author Antony Michels

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