Cash forecasting is one of the most important tools for maintaining a healthy financial position. It helps business owners estimate when cash will enter and leave the company, allowing them to plan rather than react to last-minute shortages.
A strong cash forecast examines past trends, current operations, and anticipated future activity. It tracks common inflows such as customer payments, loans, and investment income, as well as outflows like payroll, vendor invoices, debt payments, and tax obligations.
By projecting this information over weeks or months, a business can identify upcoming cash shortages, plan for seasonal fluctuations, schedule large expenses more wisely, and ensure funds are available when needed.
Companies that consistently forecast cash flow are better prepared to make strategic decisions — whether that means investing in new equipment, hiring staff, or tightening spending to prevent a cash crunch. The ultimate goal is confidence and control: knowing what’s coming so you can manage resources effectively.
The treasury department typically handles cash management. The treasurer may assign tasks to staff, even if no one has the official title “cash manager.”
Key Cash Manager Tasks
- Maintain and update cash forecasts
- Analyze systems feeding cash data
- Monitor daily cash movements
- Ensure liquidity for payables and payroll
- Obtain necessary funding
- Manage financial and operational risks
- Invest excess cash
Additional Periodic Activities
Account Maintenance, Debt Management, Equity Management, Hedge Management, Investment Management, and broader tasks such as analyzing counterparty risk, overseeing third-party managers, and advising on budgets and working capital.
Responsibility for Cash Management
Traditionally, tasks are split:
Treasury
- Forecasting
- Investments
- Debt management
- Bank relationships
Accounting
- Credit management
- Collections
- Accounts payable
Arguments for shifting A/P and credit to treasury:
- Treasury improves control of cash outflows
- Credit is policy-driven and less integrated into accounting
Collections generally remain under accounting.
Cash Management Centralization
Centralization offers benefits:
- Netting across subsidiaries
- Access to larger investment instruments
- Reduced banking relationships
- Unified debt management
However, centralization may fail when:
- Systems are incompatible
- Cash flows are too small
- The company is intentionally decentralized
- Local regulations restrict cross-border movements
There is also a natural eight-stage progression from local to centralized cash management (as described in the original text).
Banking Relationships
The treasurer and CFO should meet regularly with bank relationship managers to discuss:
- Recent performance and results
- Cash flow expectations
- Borrowing needs
- Loan covenant issues
Banks should be viewed as partners, not just vendors.
Bank Account Analysis
Treasurers should review monthly bank fee summaries to detect:
- unusual charges
- unexpected volumes
- changes from originally negotiated fee schedules
Common fees include maintenance fees, ACH fees, wire transfer fees, ATM access fees, remote deposit fees, and others.