Is Accurate Cash-Flow Forecasting More Trouble than it is Worth?

A recent report by PricewaterhouseCoopers (PwC) suggests many CFOs find accurate cash-flow forecasting more trouble than it is worth.

In late 2015, the consulting firm Protiviti released its Financial Priorities Survey. The survey of 650 CFOs revealed their primary priorities for 2016 were margin and earnings performance, the management of cybersecurity risks and strategic planning. Cash-flow forecasting appeared in fourth place on the list – with many finance executives commenting they aimed to achieve more precision and efficiency in forecasting over the coming year.

Fast forward eighteen months and, according to PwC´s recent “The Virtual Reality of Treasury” report, little seems to have been achieved in realizing these goals. Although 80% of the CFOs surveyed by PwC ranked accurate cash-flow forecasting as a “high priority” or of “critical importance”, only 22% used a rolling 12-month forecast, while the majority relied on forecasting reports based on consolidation level input numbers rather than make use of the inputs at the transactional level.

The Issues Preventing Accurate Cash-Flow Forecasting

Both the Protiviti and PwC surveys identified issues preventing accurate cash-flow forecasting. Protiviti found that accurate long-term cash-flow forecasting was complicated by uncertainties about potential changes to tax laws and cash repatriation laws. PwC highlighted concerns about the reliability of the systems and processes used to gather up-to-date data. According to PwC´s survey, just 15% of respondents update their cash-flow forecasts weekly, 53% update them monthly and 23% update them quarterly.

The authors of the PwC survey also commented on the limited visibility CFOs have of cash balances. They report the average CFO has daily visibility on 71% of all bank accounts and 80% of their total cash balances. The reason given for the limited visibility is that organizations are maintaining relationships with an average of more than 370 banks – 25-30 at core level, and 340-350 at local level. Not only does the limited visibility complicate cash-flow forecast, PwC warns, but unmonitored accounts are potential targets for fraud.

Is Resolving the Issues More Trouble than it is Worth?

PwC concludes there are a number of significant issues that need to be resolved before CFOs can rely on their cash-flow forecasts to make insightful business decisions. The report´s authors suggest mechanisms to ensure the accuracy of data, effective data mapping and proper tooling need to be implemented in order to resolve the issues, but also question whether the benefits of accurate cash-flow forecasting justify the costs and personnel hours of “getting it right”.

The CFOs questioned to compile the survey appear to think not. Many doubted that cash-flow forecasting can get any better than it is at present, while others commented that the resources they would have to dedicate to the process would be unlikely to result in material improvement. With uncertainties remaining about potential changes to tax laws and cash repatriation laws, there is a strong argument to suggest that accurate cash-flow forecasting is more trouble than it is worth. At least for the present.