In Part One of our article series on cash forecasting, we focused on developments in machine learning tools. In Part Two, you will discover ways to improve your forecast to drive working capital efficiency by simplifying access to data sources, connecting forecasting insights to working capital levers, and more.
To improve cash forecasting accuracy requires the ability to collect and aggregate data from internal and external sources across geographies, entities, and systems. Often multinationals still use multiple Enterprise Resource Planning (ERP) instances or treasury systems. With multiple entities running on different platforms, and a lack of standardisation, companies lack an understanding of the number of bank accounts or currencies in which they operate or do not have adequate access to information about payables and receivables. This decentralised approach, with its data gaps, limits the value of technologies like machine learning that can improve forecasting.
Simplifying and automating access to data sources
Multi-banking solutions can help address the issues of data accessibility, integration, and standardisation. For example, Standard Chartered is among the pioneering banks supporting application programming interface (API) with SAP Multi-Bank Connectivity, which offers companies simplified onboarding, seamless end-to-end payment processes, automated reconciliation, and real time updated cash position. This eliminates the need to log into each bank account, download information and manually consolidate it. Furthermore, the ability to feed data from multiple sources (and banks) directly into treasury workstations reduces the need to rely on Excel spreadsheets and improves accuracy and speed of forecasting.
Similarly, Standard Chartered’s partnership with FinLync, a global fintech company, enables companies to accelerate adoption of the Bank’s API offerings to make decisions faster, more frequently and based on more-precise information. FinLync’s technology can directly embed account data, via bank APIs, into an ERP platform, providing real-time visibility into account data and cash positions to support fast, accurate analysis and enhance forecasting. This gives companies an edge over their competition, without the substantial time and financial investments typically required in such integration projects.
Among internal data sources, cash flow forecasting is always a challenge given the multiple disparate processes, often paper-based, required for foreign currency payments and receipts. The problem of visibility is especially acute for restricted and exotic markets. Foreign exchange (FX) automation for dealing, processing, and reconciling cross-border transactions can improve visibility. With 80 per cent of a treasury’s exposure generally in 20 per cent of currencies, consolidating cash into a smaller number of a treasury’s major functional currencies—and executing any payables or receivables associated with long tail of low volume currencies with an embedded spot FX—enables bank account rationalisation while simplifying cash forecasting. Digitalising FX processes associated with cross-border payables and receivables in restricted markets facilitates access to the data for treasury at the subsidiary and group levels, and solutions such as Standard Chartered’s transactional FX offering makes it seamless for treasurers.
Connecting insights from forecasting to working capital levers
In response to insights gleaned from the cash forecast, companies can work with working capital advisors to improve working capital metrics. For example, companies that work with Standard Chartered’s working capital advisory team can expect a consultative and data-led approach to achieve maximum balance sheet value. Following an initial analysis by benchmarking the working capital against peers and the industry, the Bank can show the immediate impact of working capital optimisation through a scenario analysis. From there, the team provides tailored recommendations of working capital solutions across payments, receivables, and supply chain finance, together with opportunities to invest the unlocked cash towards strategic initiatives for future growth.
Automating the management of cash inflows and outflows, with cross-border and cross-currency flexibility, can cushion the impact of forecasting inaccuracies and unpredictability, streamline treasury processes, and minimise errors. This can be done through highly automated liquidity management solutions such as just-in-time sweeping and multi-bank-direct-debit sweeping to automate account funding, just-in-time payments with FX features to consolidate cash positions into a single currency and complemented by virtual account management solutions that centralise payments and collections while reducing the need for physical bank accounts.
Accurate forecasts coupled with fit-for-purpose liquidity structures can provide a strong foundation to companies as they navigate these uncertain times.
“A well-informed and consultative approach is key to balancing liquidity needs across jurisdictions, including the world’s emerging and frontier markets. Accurate forecasts coupled with fit-for-purpose liquidity structures can provide a strong foundation to companies as they navigate these uncertain times,” observes David Rego, Head of Global Liquidity, Deposits and Escrow. Along with classic solutions of sweeping, notional pooling, and interest optimisation, companies can leverage their banking partner’s suite of solutions to suit their exact operating requirements. “For example, just-in-time cross-border sweeping and virtual account management solutions can help optimise liquidity, rationalise accounts, and improve operational processes for a company with expanding global operations,” he adds.
Evolving today’s forecasting for tomorrow’s business growth
For all its persistent tactical issues, cash forecasting is a strategic tool, and its transformation allows treasurers to shift to a strategic role. “The greater the accuracy of a forecast and the more far-reaching the understanding, the quicker treasury can gain insight that supports strategic decision-making. This strengthens the advisory role to internal business partners and cements the contribution towards business stability and growth,” says Philip Panaino, Global Head of Cash at Standard Chartered.
Treasury teams must combine the resulting insights with appropriate and configurable liquidity management structures to maximise the benefits for the company.
“Emerging technology-based solutions are enabling treasuries to shift their focus from tactical forecast generation to an even more strategic focus. While systems integration, automation, and ML can simplify, accelerate, and improve the accuracy of the cash forecasting process, treasury teams must combine the resulting insights with appropriate and configurable liquidity management structures to maximise the benefits for the company,” he continues.
Conceivably, the speed of forecasting could and should catch up with the speed of doing business. That would enable cash forecasting to increasingly support the emerging on-demand global operating environment and strengthen the treasury’s resilience to future uncertainties.
Missed Part One of this article series? Click here for the developments in machine learning tools and how those can help.
Visibility, control, and optimisation are unwavering liquidity needs. Yet demand for efficiency is escalating. With automation central to our solutions, we can help you achieve it all.