EuroFinance

With inflationary pressures and prices rising rapidly,  increased costs and higher prices are changing the fundamentals and dynamics in cash forecasting formulae.  As a result of inflation, rising interest rates, volatility in foreign exchange and risks of recession add new levels of complexity to cash forecasting.

Leveraging cash forecasting and scenario planning to mitigate inflationary risks

At EuroFinance’s 9th annual Global Treasury Americas West Coast, treasurers from California based IT automation and security company, Infoblox and the HP owned, maker of workplace communications products, Poly, gathered to address the critical tools finance professionals need to effectively manage finances amidst an unpredictable economic environment, particularly cash forecasting and scenario planning.

Guillermo Viveros, treasurer at Infoblox, highlighted the importance of cash forecasting, explaining that his company uses a combination of direct and indirect methods. Direct cash forecasting involves looking at specific transactions, such as customer payments and vendor invoices, to predict future cash flows. On the other hand, indirect cash forecasting relies on financial statements, to estimate future cash positions. Viveros noted that combining both methods offers a more comprehensive view of the company’s cash flow.

“It’s just being more diligent about what we’re doing, and just making sure we’re updating our cash forecast more regularly and then making sure that we’re just communicating with the business as we go.” Viveros told delegates at the conference.

The treasurer at Poly, echoed the significance of cash forecasting in the current inflationary environment. He emphasised the importance of being  proactive in assessing cash flow situations, especially as inflation continues to rise, and also stressed the importance of communication between treasury, finance and other departments to ensure a clear understanding of cash flow expectations and the potential impact of inflation.

Scenario planning emerged as a critical tool discussed by the treasurers during the panel discussion. Treasurers pointed out that businesses need to be prepared for various scenarios and must evaluate the potential effects of different inflation rates on their operations and therefore, treasury teams can utilise scenario planning to develop contingency plans and make informed decisions in the face of economic uncertainty.

The treasury team at Poly, uses a systematic approach to scenario planning by first evaluating their current cash position and then assessing potential changes in the economic environment. The company then adjusts its financial models to account for these changes and evaluates the potential impact on cash flow.

Guillermo Viveros added that Infoblox also uses scenario planning to prepare for potential changes in the economic landscape. He emphasised the importance of collaboration between the finance department and other departments when developing these scenarios. This collaboration ensures that all relevant factors are considered, and the potential impact of various scenarios is accurately assessed.

Leveraging technology and collaboration to mitigate inflation risks

Treasurers also discussed the role of technology in managing inflation and cash forecasting. By utilising advanced technology, finance professionals can ensure they are well-equipped to guide their organisations through these challenging times.

Furthermore, Effective communication and collaboration between finance departments and other business units are also essential for successfully navigating inflation. By fostering open dialogues and sharing insights, finance professionals can work together with their colleagues to develop comprehensive strategies that mitigate risks and capitalise on opportunities.

Ultimately, navigating inflation is a complex and ongoing process. It requires finance professionals to be agile and adaptable, constantly adjusting their strategies and approaches to stay ahead of the curve. By mastering cash forecasting, scenario planning, and utilising technology, treasurers can lead their organisations through these turbulent times and help them emerge even stronger than before.

The world’s largest and most influential treasury event will return this September in Barcelona. Join more than 2000 senior-level professionals representing over from more than 50 countries to exchange experiences, learn best practices and meet best-in-class financial and technological partners. This year we will explore the theme “Navigating a new world,” empowering treasurers to manage today’s new and complex challenges and optimise treasury for the new economic cycle. Find out more.