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25 Aug 2009
Most companies will fail to accurately forecast cashflow over the next three months because they still rely on spreadsheets and don’t utilise communication links with business units, suppliers or customers to get a sense of their financial position.
Research from finance function adviser The Hackett Group, conducted in association with the US National Association of Corporate Treasurers taking a sample of 85 US and European companies with revenue of $14bn or more found only 22% can forecast operating cashflow two to three months out to within 5% accuracy. Less than half can make the same claim about their sales forecasting, the study found.
Hackett Group added that it saw better cashflow forecasting among companies at the top quartile by revenue, noting a common style of cross-functional teams with significant operational involvement “critical given the number of groups outside of finance that have a role in the forecasting process.”
This drove better forecasting results by fostering closer relationships with clients and suppliers to understand their financial positions and keep regular tabs on their credit positions. It added that the more successful cashflow forecasting businesses have more structured and interactive dispute resolution processes for customers and suppliers.
The study also revealed that 80% of companies don’t set forecasting accuracy targets and 85% do not have any form of incentive to promote improved forecasting accuracy.
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