A reliable forecast requires a sound basis for decision-making. Since safeguarding liquidity is an essential element of business continuity, the process used to predict financing requirements should not contain any weaknesses. Weaknesses arise when the collection of the required underlying data contains gaps or errors, which may result in costly planning mistakes and, in extreme cases, even insolvency.
If you currently prepare your reports using a more or less complex spreadsheet, while subsidiaries communicate their financing requirements partly by telephone and partly by email, and you are able to determine an “approximate” financial status once a week, this may be sufficient for a small number of companies. However, since most businesses rely on external financing, liquidity is not always available in abundance. Precise planning and cash positioning are therefore highly advisable in order to avoid unnecessary liquidity shortages and because borrowing and investing funds involves interest costs or returns.
In addition to optimising returns, there are many other reasons for professional liquidity and financial planning:
- Avoiding errors and duplicate data entry: An integrated Treasury Management System (TMS) is used to record all company cash flows using the correct value dates. “Integrated” means that all cash flows arising from the financial transactions managed within the TMS are automatically available for planning without requiring duplicate data entry. This applies to one-off guarantee fees as well as all interest, repayment and fee payments relating to long-term loans. Trinity therefore provides modules for managing financial transactions, including internal and external financing arrangements and investments, interest rate derivatives, foreign exchange hedges, guarantees and letters of credit, as well as for managing cash pools and the multilateral settlement of internal receivables and payables through netting.
- A more complete data basis and time savings: Simply consolidating financial cash flows within a single system provides a better overview. Additional planning data can be imported automatically and regularly from various sources through interfaces and web services, for example from accounting or procurement systems.
- Decentralised use and straightforward consolidation: Foreign subsidiaries can also use a web-based TMS such as Trinity within their designated area of responsibility, for example to prepare their own plans or manage financial transactions.
- Inclusion of intercompany planning: Receivables and payables can be entered by one party, or imported automatically, and then mirrored by the TMS to the relevant counterparty. This effectively avoids consolidation differences and duplicate entries with their associated risk of error. Before consolidation, completion notifications can be used to ensure that all parties have entered their data into the system, providing a status that is as current and complete as possible.
- Cost-effective internal financing: Where entities identify a financing requirement, they can submit a standardised intercompany loan request directly within the TMS by specifying the amount, term and currency. All resulting cash flows are immediately visible in the planning of both the lending and borrowing entities. This in-house banking function eliminates emails, telephone calls and, in particular, duplicate data entry, saving valuable working time and preventing transmission errors.
- Audit compliance and improved creditworthiness: The structured workflow and the automatic recording of data entries, amendments and approval steps within the TMS through an audit trail make it possible to see at any time who contributed which information and when. This clear audit trail helps identify errors and also creates a highly professional impression with auditors, lenders and investors.
- Foreign currency conversion at the click of a button: Foreign entities can prepare their plans in their local currency and do not need to perform time-consuming conversions into the group currency. By importing foreign exchange rates regularly, views can quickly be converted into another currency. In the multi-currency planning environment, conversion into the group currency at holding company level is performed automatically.
- Foundation for exposure management: Currency-specific analysis on a daily, weekly, monthly or quarterly basis allows foreign exchange hedging to be monitored in accordance with group policies. Costly overhedging or risky underhedging relative to the predefined hedge ratio can be identified and corrected quickly. A TMS therefore provides modules for recording and valuing foreign exchange hedging transactions, with the related cash flows automatically reflected in planning. Interfaces with online trading platforms such as 360T or FXall®, together with automated matching and reporting, support efficient workflow management.
- Security and independence: To establish a complete basis for decision-making, it is important that all parties are willing to contribute. Liquidity planning should therefore be intuitive and as easy to use as the existing spreadsheet, while offering significantly more functionality, automation and security. In addition to audit compliance and error prevention, independence from individual employees also plays an important role. For example, an employee may have spent years developing a complex planning model in Microsoft Excel that only they fully understand.
- Continuous improvement of forecast quality: Regular plan-to-actual variance analyses allow the causes of planning errors to be identified and addressed quickly. Simulation functions based on different assumptions regarding exchange rate and interest rate developments, revenue changes or commodity price fluctuations enable worst-case and best-case scenario analyses and help prevent unpleasant surprises.
- Foundation for new technologies: Predictive analytics analyses existing data in greater detail to derive forecasts, while artificial intelligence is intended to identify patterns that can improve predictions of corporate liquidity. Under certain conditions, both methods can improve forecast quality. The most important prerequisite is an accurate and complete data basis. However, systemic shocks such as the COVID-19 pandemic can render painstakingly collected data largely unusable in many industries because both procurement and sales conditions have changed completely.
