Cash Management Techniques & Cash Flow Optimization

Tim Williams's Profile
cash management techniques The mantra "cash is king" is still "in effect: even though the economy has signs of turning the corner. As I try and ensure that my firm is leveraging technology to optimize cash flows and working capital I often still feel "behind the curve" in some sense. I would be interested in some insights as to what is out there in cash management techniques in terms of current and emerging techniques and technology. Are there Cloud and SaaS based applications out there that focus on cash flow visibility, cash flow forecasting, and optimizing working capital?
 
 

Answers

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There was some discussion about working capital analyis here.
http://www.proformative.com/og/resource/general-content/importance-thorough-working-capital-analysis-0

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Proformative also offers online courses, including this one titled,

"Corporate Cash Investment Strategies"

http://www.proformative.com/courses/corporate-cash-investments-training-course

and...

"Corporate Cash Management Overview"

http://www.proformative.com/courses/corporate-cash-management-training-course

And, here is a video introduction. to this Proformative Academy course.

Enjoy!

Best... Sarah

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Most companies prepare a P & L monthly. Does anyone have thoughts on how often the cash flow steatement should be prepared?

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At least monthly - more frequently if your cash situation is tight or if you make massive cash committments with long lead-times, as I have done in some manufacturing-based companies. In that case you may need intra-period cash forecasts, starting with an accurate starting point for cash. But monthly minimum so you can track your time-to-cash and all of the processes that either hold or free cash at your company. I can't imagine doing it with less frequency b/c at the end of the day, cash is what fuels your business, not profits.

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Most companies prepare a 13-week cash forecast that is updated each week based on the best infomration available. This takes cooperation of other functions keeping your finance team aware of new projects and changes in timing on item included in the annual budget.

If cash is tight you will want to look further out than 13-weeks, as securing financing, should you detect a shortfall, will take some time in this economy.

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I agree with Jacqueline - weekly updates require your finance team to get closer to the functional drivers in your organization, communicate more frequently with and ultimately infulence decisions & actions more effectively.

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Topic Expert
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At Holiday Inns, Fidelity and EDS Corp we updated the cash forecast weekly through quarter end. Note that our forecast was direct (cash based), top down and 96% accurate over a 90 day horizon.

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Tim -

There are several tools known as "treasury workstations" than can be useful. As with any tool how it is employed and what measurements are used to judge "success" are as important if not more important than the tool. Example: taking cash flow forecasting seriously whether weekly, monthly, whatever, is key. Knowing how much cash (opening balances + cash flow in - cash flow out) is "enough" is also important. Finally, having treasury become responsible for the cash flow statement from an action perspective (i.e. not just reporting the numbers but actively managing the company's liquidity or financial risks) is also important.

Whether the tools used are in the cloud or "at home" is less important although there is a difference in the investment required to acquire the tools.

Be glad to talk about specifics

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Hi Tim,

Within my consulting experience, I have usually seen the Cash Flow forecast most successfully being part of a larger financial forecast with the process typically starting with the Sales forecast, then the P&L forecast with the Cash Flow forecast being downstream from these two outputs.

With that sort of integrated financial forecast in mind, there are two pure-play Cloud based forecasting applications: Adaptive Planning and Host Analytics.

Both of these applications were built with the Cloud in mind and work well when multiple users are involved in the forecast process. They certainly were developed more with a FP&A audience than a treasury audience in mind. But both can readily handle a Cash Flow forecast in various formats (Sources/Uses, Indirect Method, Direct Method, etc).

There are other vendors in the Planning/Forecasting space that offer Cloud options, notably Oracle/Hyperion and SAP, but neither of these two vendors built their application(s) with the cloud in mind, and hence, the majority of their customers are running the software "on premise" on their own servers.

Disclosure: my company, Abacist Group, is an implementation partner for both Adaptive Planning and Oracle/Hyperion.

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We have used a 13 weeks rolling, cash basis, forecast in all of my previous companies. As mentioned it requires you to get in touch with the drivers of the business. It also requires you to sharpen you judgement and go to other reports the company does on a reqular basis, such as budget and outlook. I think it's important that you don't place more time on technology than on judgement. This doesn't have to be a complicated process and works best when you have top down support.

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