By Adnan Khan, investorsHD

Why Cash Flow Forecasting is a Big Challenge for Treasuries and Finance Today. Image source: Getty Images.

Cash flow forecasting is a challenging task that treasuries and finance teams face in everyday world. Assessing the existing system and implementation of the new one can pose different challenges. These challenges become perennial due to uncertainty.

Cash flow forecasting is a challenging task that global companies face. Fragmented information, incoherent planning, and a lack of a consistent approach can lead to false forecasts.

Cash flow forecasting is a key task for any treasury and finance function; in this article, we discuss the major challenges in cash flow forecast with a three step approach in effectively managing cash flow for any organization, individual client or companies.

Key Challenges in Cash Flow Forecasting

Cash flow forecasting can become a perennial challenge for the treasury management and finance function. These issues can quickly turn into liquidity and volatility problems for global companies.

Global regions can hold precious cash at their ends without realizing the costs for the group at large. The group may end up facing liquidity issues as well as higher costs of cash management at its disposal.

Inaccurate forecasts can result in higher costs. It also impacts key performance metrics.

Let us first identify the key challenges global companies face with cash flow forecasting before we suggest an actionable plan to our clients.

Inaccurate Forecasts

Global companies rely heavily on inputs and reports submitted by their respective global regions. The Treasury management can create effective cash flow forecasts as long as it receives accurate information.

Global companies receive inaccurate information due to ad-hoc arrangements or underdeveloped systems in global regions. It can lead to several financial risks for the company, including liquidity, volatility, Forex, and interest rate risks.

Underdeveloped Systems in Global Regions

One of the key drivers behind inaccurate cash flow forecasting is an underdeveloped system in global regions. For instance, if a global company is represented by 15 regions, many of these regions may come short of adequate resources.

One core issue regions face is the implementation of ad-hoc systems. These temporary system placements include human resources. That can lead to inconsistent reporting and inaccurate input metrics for the central treasury.

Stagnant Cash at Global Regions

When the head office and the central treasury management are receiving inaccurate information, they cannot devise an effective forecasting plan. That will inevitably result in stagnant cash in global regions.

It can create severe liquidity and forex risks for the global company at large. It will affect the operational and strategic competitive advantage of the company as well.

Managing Forecast Variance

A key challenge for the treasury and finance department has been managing forecast variance. One way of reducing the variance gap is to perform a first-hand test of the inputs provided by regional managers.

The finance segment can quickly compare the inputs with the recent past reports. For instance, if a region reports a variance of $10 million in the previous quarter and $20 in the current quarter, it’s a red flag with a 100% variance gap.

Forecast variance is also linked with the accuracy of input information. You’ll receive the results based on what you placed in the system. If reporting from regions isn’t accurate and timely, no matter what, you cannot reduce the variance gap.

Resource Availability and BOD Approval

Global regions can realize the shortcomings and may devise a new cash flow management system. The region may not have sufficient resources at first to implement the new system.

Convincing the board of a transition is another key challenge faced by regional managers. Financial and operational constraints often hinder the implementation of new cash management systems.

One way of managing the issue is to identify and implement an effective system side-by-side with the existing one. Regions can achieve desired results by showing the winning solutions to the board. In that sense, the board should be in a position to take a clear green/red decision.

Stakeholder Management

Stakeholders have their roles and responsibilities, often conflicting in nature. For instance, cash flow management is more concerned with day-to-day operations. It can be termed as a short-term objective.

On the other hand, budgeting can be seen as a long-term approach. It is more of an accounting task than cash management.

Temporary Market Shocks

The ongoing Ukraine-Russia war and escalating US-Iran tensions are sending shockwaves through the global market, particularly in the oil sector. Ukraine’s economic survival hangs in the balance as it marks four years since Russia’s invasion, with the IMF calculating a financing gap of $136.5 billion through 2029. Meanwhile, US-Iran conflicts are driving oil price volatility, with Brent crude reaching $80 per barrel in June 2025 due to heightened risks of disruption in West Asia. A robust cash flow management system should be able to cope with such challenges.

Global regions can proactively plan for the implications of temporary market shocks. Adjustments for forecasts can be made by changing input variables and assessing the results.

An effective way of dealing with such uncertain situations is to assign clear roles and responsibilities. Deciding early on the responsibility for making forecast adjustments to definitive roles can create accuracy. Also, there must be an effective system in place that offers the required tools to the management.

Identification of key challenges with cash flow forecasting is a pivotal aspect of successful cash management. Once the company realizes its shortcomings, it can take a comprehensive approach to implement a new system.

Cash Flow Forecasting System with a Three-Step Approach

Experts has propose a three-stage solution in a particular situation with key challenges as discussed above.

* First Stage – Identify Risks and System Loopholes

One of the key issues many organizations face is the lack of understanding of existing problems. Many global operations and regions do not realize the challenges with their existing cash flow management system.

Identifying the risks and system loopholes is the first key step towards successful change implementation. The fragmentation may exist at different levels that lead to inaccuracy of the forecasting system collectively.

Realizing the existence of the problem with the current system in itself is an important achievement.

* Second Stage – Develop an Effective Plan

The second stage is to develop an effective plan for cash flow forecasting. The plan can lead to the implementation of a new forecasting system altogether.

We define this stage through load versus logic terminology. It is the comparison of the capacity of the system and process. An effective plan would include dealing with one aspect at a time.

Once the company builds the required resources, it can then scale the expectations of the system.

* Third Stage – Implementation

At the final stage, successful implementation is the key. It can be achieved by placing the new system parallel to the existing one at first. It will reduce the system disruptions and maintain the data flow as earlier.

Then, the company can work out the management of the stakeholders. It can be achieved through the clear balancing of load and logic. An effective implementation plan will come up with consistent expectations from different stakeholders.

The system implementation is meant to achieve the desired goals. For instance, achieving leverage is the goal. The management can take it as a two-way approach; one is to achieve more value in the same time, the second is to achieve the same value in less time.

Final Thoughts

Cash flow forecasting presents several challenges to treasury and finance functions. Companies with global operations face several issues due to inconsistent approaches, inaccurate information, and a lack of coherent plans.

Through structuring and managing treasury operations across multiple sectors and organizations, Experts have identified common shortfalls and developed flexible and effective solutions to address value outflows and create long-term gains in managing cash flow.