Every corporate in recent years has recognised that producing timely, accurate and consistent cash flow forecasts is essential for liquidity risk management. While planning and budgeting are essential disciplines, cash flow forecasting is a vital early warning system to highlight early signs of financial distress and enables the company to respond to potential liquidity challenges and act on opportunities before they become critical to the business. In this article, Jukka Ryhänen, Group Treasurer of Finnish chemicals company Kemira, discusses his experience of optimising cash flow forecasting at his company.
Group treasury at Kemira fulfils a variety of functions within the company, particularly securing funding and liquidity while minimising risks and costs, and providing value-added services to business units, of which there are nearly 150. Cash flow forecasting is one element of this role, but one of the most difficult. Until 2000, like many multinationals, we were struggling to produce accurate forecasting in a consistent way, with multiple channels for collecting data, unpredictable timing and missing information. Forecast reports needed to be produced manually, which was time-consuming and prone to error. Our bank account structure was confused and although we had a cash pool in place to centralise cash as far as possible, we still had €50m in accounts outside the cash pool, which meant that our borrowing levels were higher than necessary, and our use of cash was not optimal.
Revising processes and technology
We recognised that there were two elements to addressing our cash flow forecasting challenges: firstly, revising our processes and enhancing the integration between systems (straight-through processing) and implementing a new system for cash positioning and forecasting to help standardise our processes, reporting and collection of data. Although our banking partners had technology they could offer us, we preferred to license a system that was bank-independent.
Having reviewed various options, we selected Trezone, a solution provided by the Finnish company Exidio. In addition to the company’s experience with Finnish companies, the cash flow forecasting module provided structured templates for inputting for forecast data, import capabilities from both external and internal systems, standard reports, and greater security and control. As a web-based solution, Trezone was easy to use and did not require a technical installation, which meant that the implementation was quicker and required less resource. Furthermore, Trezone had other capabilities from which we could benefit, including support for a simple netting process, intercompany transaction management and the ability to collect information on FX exposures from business units. We decided it would be convenient to have these capabilities delivered through a single solution.