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Should You Take a Cash Forecasting Solution from Your Bank?

August 20th, 2015

More and more banks offer a cash forecasting solution to their clients. Cash forecasting is a key development initiative for companies but often they lack the required expertise and resources to fix things.

In this blog entry I will cover some of the key issues you need to consider when you think whether a bank-provided cash forecasting solution meets your needs.

From the perspective of a bank, offering a cash forecasting solution is a way to deepen the customer relationship.

In bottom-up forecasting the solution is actively used by the parent company and all subsidiaries making cash forecasts. The solution is also integrated into the numerous corporate AP/AR or ERP systems. When a cash forecasting solution provided by a bank becomes part of the daily processes, the bank has successfully deepened the customer relationship and tied the company tighter to the bank.

Companies have also started to require cash forecasting solutions from banks. Some banks report that more than half of new cash management RFPs contain a cash forecasting solution.

Let’s consider why you’d want to take a cash forecasting solution from a bank.

Reason 1: Reliability and safety. The bank is already your partner that offers your bank accounts and payment transactions. When you take the solution from the bank, you save resources and decrease your risks. You don’t have to vet the solution providers nor do you need to increase your counter-party risk by signing an agreement with a new software provider.

Reason 2: Your bank already has a significant part of the information you need to forecast your cash flows and liquidity. When the solution offered by the bank automatically integrates information about liquidity on the accounts of the bank, you save on deployment time and costs. This saves your resources for other integrations.

Reason 3: Cold hard cash. Cash forecasting is for the bank what discount bananas are for the grocery store: draws the customer into the store for more shopping on higher margin products.

The bank is likely to offer the solution at a very attractive price. When a bank plays the game right, they do not cash in with a cash forecasting solution but instead uses it to make its full cash management package comprehensive and attractive.

Cash forecasting is for the bank what discount bananas are for the grocery store: draws the customer into the store for more shopping on higher margin products.

Let’s also consider why you may not want to take the solution from a bank.

The most common reason is the desire to be independent of banks. You are committed to use several banks and do not want to standardize a single-bank solution. Especially big corporations tend to think this way.

You may also be concerned that the bank has too much information about your business if they are able to view your cash forecasts. This is a perfectly valid point, but bank should not have access to your cash forecasts without your explicit permission even though the bank offers the solution.

The solution offered by the bank could also be an old-fashioned software, even an Excel-based application. These are usually capable analytics tools but updating information is often fully manual. You should forget solutions like this, especially if you are trying to build a reliable short-term liquidity and cash forecasting model.

Make sure that the bank’s cash forecasting solution is a modern cloud-based application that is easy to integrate to your other systems.

In an earlier entry Cash Forecasting is not an IT Project I described some of the key things you need to consider when buying a cash forecasting solution. This checklist applies very well to a solution offered by a bank, too.

First of all, make sure the pricing is transparent. Make sure that you are not saddled with extra costs that offset the seemingly low price of the solution.

Next, make sure you can test drive the solution before committing to it. This is especially important if you are planning to make the cash forecasting solution a part of a larger cash management renewal project. During the test drive, pay close attention to ease of deployment and ease of use.

Make sure that the bank’s cash forecasting solution is a modern cloud-based application that is easy to integrate to your other systems.

Also ask the bank how the cash forecasting solution is developed and what kind of support is offered. Does the bank develop and support the solution itself or has this been outsourced to a specialist partner?

Cash forecasting is an internal company process and banks rarely have deep understanding in it. When development and support has been outsourced to a specialist, you can count on continuous development and knowledgeable support.

If your goal is to get cash forecasting in shape fast and cost-effectively, a solution offered by a bank is probably a good alternative.

For the next few weeks, I will write this blog from the perspective of a bank. Next week I will show why a bank really should offer a cash forecasting solutions to its customer.