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Slow Technology Take-up Hinders Forecasting
Technological advances have made cash forecasting much more accurate. Many companies have yet to take advantage of the new capabilities, though.
Ask any corporate treasurer or collections manager how they do their cash forecasting, and they are likely to reply, "On the back of a cigarette packet," or, in the case of David Gondorf, worldwide credit and collections manager for Silicon Valley-based data storage provider Network Appliance, on a 10-inch-thick print-out he would take home every weekend and manually sort through. "I would keep a tally, come in on Monday and report to senior management. It took forever," he says.
It sounds primitive but Gondorf is not alone. Until recently, says John Wilson, director of treasury for one of the world’s largest futures brokers, UK-based Man Financial, most of the broker’s cash processing was done manually. Man Financial’s business is unusual in that its cash forecasts tend to be more intraday, rather than long-range (weeks, months), and since implementing IT/2, an automated treasury management system from SimCorp, Wilson says this has become much easier. "If we are expecting $4 million coming in, it [IT/2] is pretty powerful in terms of helping us better manage real-time intraday flows," he says.
While technology can provide companies the capacity to forecast cash balances more accurately and track money as it moves into and out of accounts, anecdotal evidence suggests that the majority of companies are still living in the dark ages. "There are still companies with two people crunching numbers on spreadsheets," says Patrick Coleman, sales and marketing director at treasury management systems vendor SimCorp. A number of studies back this up. According to a Schmidt CS Survey cited by HSBC, 79% of companies polled still used spreadsheets for cash forecasting. HSBC’s own survey of its corporate customers found that 42% rely on manual forecasts, something with which 80% are dissatisfied. "There is a lack of confidence in many companies with respect to cash flow forecasting," says John Nicholas, manager, business development, global payments and cash management, HSBC. "A lot of companies do their cash forecasting using spreadsheets or in-house systems, which are manually intensive and prone to error. Companies are receiving information and making investments based on information that is wrong," he note |
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Implementation Presents Challenge |
The technological challenges in achieving this data utopia are significant. Most companies, especially those with a global network of subsidiaries, often have different ERP systems, which may not be integrated with their treasury management systems. HSBC’s customer survey found that systems integration is a key barrier to implementation. These technological hurdles need to be overcome before companies can automate and capture the data required to make more accurate forecasts.
"A lot of companies are upgrading their ERP systems because they are finding when it comes to collections forecasting, it doesn’t meet their needs," says Srivastava. In some cases, though, the biggest challenge is not so much integrating disparate systems but empowering the people who provide the data—the ultimate end-users of automated solutions. Gondorf concedes that implementation is the hard part. "We are still trying to make sure that everyone understands the importance of this," he says. "I am competing with collections managers who work 10 to 14 hours a day, and they don’t just do collections. The technology needs to make it easier for them." |
More accurate cash flow forecasting is not just about getting data from one department. It can entail capturing more detailed information about the flows of funds and goods within a company across a number of business lines: sales, accounts, export, purchasing. All of these different areas need to cooperate. For this to work, support from the top is needed. "You need to have support across the organization and the power to influence many business lines to make sure the numbers are correct," says SimCorp’s Coleman.
As more companies automate the collections process, Srivastava predicts that general confidence levels around forecasting will increase. HSBC’s survey indicates that 53% of companies plan to change their manual processes in the next two years. "A company will be able to get up in New York and announce something they wouldn’t have dreamt of doing because of the accuracy and confidence levels," Srivastava says. Not just yet though.