Kyriba Releases New Comments: Cash Forecasting May Be Your Best Risk Management Tool

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Kyriba, treasury management, accounting software
Cash Forecasting May Be Your Best Risk Management Tool

Minimizing exposure to risk is an essential job for corporate treasury departments. In most risk management studies, including a comprehensive global survey in 2011 by Accenture, Liquidity Risk is rated the first or second (to counterparty risk) concern of global Treasurers. Cash Forecasting has thus become an invaluable tool for global Treasurers seeking to mitigate risks brought on by cash exposure to counterparties and exchange rate volatility, as well as maintaining adequate liquidity to fund typical business operations.

The Cash Forecast– when accurate – serves as a strategic tool that a Treasurer and CFO can rely upon to make significant business decisions, not the least of which is establishing the proper hedging policies to limit currency and counterparty losses. Without a reliable cash forecast, the Treasurer cannot properly assess what his or her exposures are and hence cannot implement the proper actions to safeguard their liquid assets. In a recent Aite Group report entitled “The New Treasury Management Systems”, Aite’s Senior Analyst Enrico Camerinelli identified that the new generation of treasury management systems are “intelligent systems” that should include a comprehensive integration of cash flow sources and risks so that Treasurers can make the right decisions for their liquidity for current and future time horizons.

Despite the “new generation” overtones, the reality is that many Treasurers have found ways to increase visibility and directly improve forecast accuracy as a result. In this manner, they have achieved the necessary reliability to make those risk mitigating decisions.

There are mainly three components required to achieve improved forecast accuracy:

1)    Cash Visibility. With so many global banks connecting to regional banking networks, to SWIFT, or directly via internet protocols, there is very little reason not to achieve full visibility into daily cash balances. With or without a treasury management system, 100% visibility is possible.

2)    Cash Forecast. While best practice cash forecasting techniques remain more ‘artistic’ than scientific, once a Treasurer has determined the desired data sources (which may include A/P, A/R, historical trends, decentralized business unit projections, etc.), it is merely an exercise of concatenation to ensure there is a single view of expected cash flows for the forecast time horizon. Every business is different on how far they can reliably project, but there is no reason that with today’s technology tools this data cannot be combined in a single view for the Treasurer to review every day.

3)    Actual to Forecast Reconciliation. This is the key to the puzzle, as a forecast is unreliable until validated. With actual cash information (e.g. bank balances and transactions), treasury has the necessary information to marry together and determine how accurate the projections were for given time periods. Treasury technology plays a role here, as the concept of taking a historic ‘snapshot’ of your forecast and saving that for later reconciliation can be a tad overwhelming for an Excel-based workflow. However, the tools are not cost prohibitive due to SaaS and cloud technology.

Of course, once this reconciliation is completed, the report on forecast accuracy must be applied to change the forecast data patterns. Whether that is working with the Controller’s team to improve accuracy within the ERP, working with regional controllers to improve the rigor of their projections, or it is choosing alternative data sources. Implementing a feedback loop to change forecast behavior is paramount to delivering a better, more reliable forecast.

With that improved reliability, the Treasurer is now armed with the insight and confidence to make better financial and risk management decisions to better protect the value of the cash forecast.

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About Kyriba Corporation

Kyriba is the global leader in next generation treasury solutions in the Cloud. We enable CFOs and finance teams to optimize their corporate treasury functions by delivering fully-integrated cash, treasury, payment, risk management and supply chain finance solutions through a user-friendly, scalable and secure SaaS platform. Kyriba improves visibility and productivity, enabling our clients to minimize risks and have better control over their treasury and finance decisions. With a client loyalty rate of over 98%, we support more than 700 organizations globally including market leaders such as Amway, Electronic Arts (EA), Interpublic Group, PulteGroup, Inc. and Qualcomm. For more information, contact treasury(at)kyriba(dot)com or visit

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Ellie Ardelean
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Kyriba, treasury management, accounting software