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Treasury Management: The Practitioner's Guide by Steven M. Bragg

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3
Cash Forecasting
Cash forecasting is absolutely crucial to the operation of every organization. If there is ever a cash shortfall, payroll cannot be met, suppliers are not paid, scheduled loan payments will not be made, and investors will not receive dividend checks. Any one of these factors can either bring down a business or ensure a change in its management in short order.
Conversely, if a company is burdened by too much cash, it may be losing the opportunity to invest it in higher-yielding, longer-term investments unless it knows its projected cash balances. A quality cash forecast ideally allows the treasurer to determine how much cash is available for short-, medium-, and long-term investments, each having progressively higher returns. Since longer-term investments may have less liquidity, it is imperative that the treasurer be able to invest the correct amounts with confidence.
In order to avoid these problems, this chapter covers how to construct a cash forecast and automate the creation of some of the information contained within it, and how to create a feedback loop for gradually increasing the accuracy of the forecast. We also describe several related topics, including the bullwhip effect and the integration of business cycle forecasting into the cash forecast.

CASH FORECASTING MODEL

The core of any cash management system is the cash forecast. It is imperative for the management team to be fully appraised of any cash problems with as much lead time as possible. ...

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