Upfront: Cash Forecasting Gets Short Shrift

As investors increasingly look at organizations' cash flow as a window into their financial health, many multinationals are failing to provide much reassurance about their ability to anticipate performance in this vital area. According to a recent survey conducted by GTNews and sponsored by REL Consultancy Group, 75 percent of multinational corporations admit to having little or no confidence in the accuracy of their own cash flow forecasts.

Why does this highly reliable indicator of corporate health continue to play second fiddle to profit predictions? According to the REL survey, there's no shortage of reasons. Two-thirds of respondents believe the unfortunate state of cash forecasting results from a lack of system integration across their business units. Multinationals' business units often splinter off into fiefdoms, and more than 60 percent of senior finance professionals surveyed rate their influence with individual divisions as low. (Business units rarely have incentive to focus on cash.)

In addition, poor internal communication was blamed for cash flow forecasting errors by more than half of respondents, and poor sales projections and collections policies were cited by almost half of treasurers in the survey. They said that problems in pricing, billing and logistics lead to poor cash collections from customers.