New White Paper Identifies Top Five Trends Impacting Cash Flow Forecasting




    Trends Favor Electronic Payments and Payment Cards

    VIENNA, AUSTRIA, September 18 /CNW/ - A new Visa-commissioned white paper
titled, "Trends in Cash Flow Forecasting," outlines the current state of
short-term cash flow forecasting, identifies and analyzes five major trends
that are impacting cash flow forecasting, and provides four categories of best
practices.

    Corporate treasurers worldwide are now focusing attention on cash flow
forecasting for two reasons, according to the paper. First, there has been an
increase in the sophistication of forecasting processes due to recent
improvements in information technology and advances in forecasting techniques.
Second, the problems facing forecasters have grown more challenging as a
result of increased exports and the heavier use of debt in financing.

    The paper, released today at the annual EuroFinance International Cash
and Treasury Management conference in Vienna, Austria, focuses on short-term
forecasts that cover the next twelve months and are the main concern of
corporate treasury departments.

    "Forecasting is critical for companies of all sizes to minimize risk,
maximize use of working capital and organize returns on investment: yet
companies have found it difficult historically to develop accurate forecasting
models because of the inability to acquire quality information," said Aliza
Knox, senior vice president, Visa Commercial, Visa International. "Several of
the cash flow forecasting trends favor electronic payments and payment cards
because they provide direct access to easily categorized revenue and spending
data."

    The five key trends impacting cash flow forecasting are:

    
        1. Improving technology is simplifying forecasting process: Firms
           are using better information systems to simplify and enhance
           the forecasting process.

           -- Firms are coming to increasingly rely on treasury
              information systems (TIS) and to make less use of
              spreadsheets. TIS offer advantages because they maintain one
              central forecast, reduce error-prone manual data entry,
              enable greater security controls, provide a clear audit
              trail, and can easily include direct data feeds from other
              sources that can be used in preparing the forecast.

        2. Forecasting function is centralizing: Forecasts are being
           produced more often by corporate headquarters rather than at
           the business-unit level.

           -- TIS facilitate the transfer of information from
              business-units to headquarters. In centralized forecasting,
              a small number of employees at headquarters can focus all of
              their time on forecasting, likely enabling them to become
              experts in managing new techniques to generate superior
              forecasts in less time. In addition, centralization allows
              for uniformity across forecasts of different divisions.

        3. Tougher regulations are driving better-informed forecasts:
           Spillover effects of tighter regulatory controls are leading to
           more informed and data-driven forecasts.

           -- Accurate forecasting can be a critical component of
              regulatory compliance, and securities regulations in some
              countries have directly increased the importance of the
              forecasting function.

        4. New forecasting techniques becoming available: New techniques
           based on statistical and economic analyses are increasingly
           being adopted.

           -- These techniques include: a) project-level forecasts that
              are more accurate than company-level forecasts;
              b) driver-based forecasting, which enables firms to evaluate
              the effects of economic environment changes; c) "Cash Flow
              at Risk," which permits firms to evaluate the risk that a
              disastrous event could lead to a cash shortage;
              d) incorporating forecasts into the investment maturity
              decision-making process to reduce banking transactions'
              costs; and e) cross-country credit analysis and
              international macroeconomic modeling to control
              export-generated cash flow volatility.

        5. Private equity deals are increasing the need for accurate
           forecasts: The drive for better forecasting is strengthening,
           especially in firms purchased by private equity buyout
           investors.

           -- Firms acquired by private equity buyout funds typically
              carry heavy debt loads. These firms need to produce
              especially accurate forecasts to comply with lending
              covenants and to avoid bankruptcy risk.
    

    "The benefits created by good cash flow forecasting practices range from
significant efficiency improvements at cash-rich firms to potential protection
from insolvency at financially constrained enterprises," said Dr. Mark J.
Garmaise, PHD, UCLA Anderson School of Management, author of the cash flow
forecasting white paper. "The trends suggest that companies would be wise to
incorporate the cash flow forecasting model more fully into their operational
planning strategy to maintain a desired level of liquidity regardless of
unforeseen activities."

    Best Practices

    The white paper describes four categories of best practice from analysis
of the five cash flow forecasting trends, including:

    
        1. Systems: Integrated firm-wide treasury information systems,
           such as third-party treasury workstations or enterprise
           resource planning treasury modules, are best. Spreadsheet-based
           forecasting is increasingly outdated.

        2. Forecasting Techniques: Driver-based forecasting, using either
           simulations or regressions, is best, especially when combined
           with scenario or statistical analysis that provides a sense of
           the expected future cash flow as well as its range.

        3. Payment Methods: Some form of electronic payment system,
           ideally one including integration with the accounts of
           customers and suppliers, is best. These payment methods can be
           incorporated into new forecast technologies. Electronic payment
           systems also provide data that is useful for
           information-intensive forecasting techniques.

        4. Job Function: The attention of the treasury staff should be
           focused on an analysis of the determinants of cash flow
           variability, not on data collection. Improved technology
           automates the previously all-consuming task of assembling data,
           leaving forecasters with time for more careful study of cash
           flow dynamics.
    

    Benefits of Electronic Payments Over Checks

    According to the paper, several of the trends in cash flow forecasting
favor the use of electronic payments and payment cards over checks. For
example:

    --  Improved technology and systems integration makes it more attractive
to use both electronic payments and payment cards, because these methods of
payment can be incorporated into firm-wide computing systems.

    --  Centralization favors electronic payments and cards for receivables
and payables, because of the direct access to information on future promised
cash flows that is provided.

    --  Tougher regulations favor electronic payments and cards, because they
provide control over incoming funds, and allow companies to limit access to
these funds to authorized parties. In addition, limiting corporate purchases
to electronic payments and cards makes it easier for firms to monitor cash
outflows and prevent unauthorized expenditures, because these payments are
easier to document and provide an audit trail.

    --  Advanced new forecasting techniques suggests use of electronic
payments and cards, because they offer disaggregated revenue and spending data
that can easily be categorized and studied.

    Methodology

    To analyze the current state of cash flow forecasting and developments
that are likely to be important in the future, Visa commissioned Dr. Garmaise,
an expert on corporate finance and banking, to identify and analyze more than
75 pieces of secondary research. Dr. Garmaise also conducted primary research
interviews with six organizations of varying sizes across several industries
worldwide to learn more about their current and future cash flow forecasting
processes.

    To view the entire cash flow forecasting white paper, visit
www.visa.com/cashflowforecasting.

    Notes to Editors:

    About Dr. Mark J. Garmaise, author of the cash flow forecasting study:
Dr. Garmaise, an expert on corporate finance and banking, is currently
Assistant Professor of Finance at the UCLA Anderson School of Management in
Los Angeles, California, where he has been teaching for the past six years.
Among his publications are "Informal Financial Networks: Theory and Evidence,"
(with Tobias Moskowitz), Review of Financial Studies, and "Confronting
Information Asymmetries: Evidence from Real Estate Markets," (with Tobias
Moskowitz), Review of Financial Studies. Dr. Garmaise was an Assistant
Professor at the University of Chicago Graduate School of Business before
joining the faculty at UCLA Anderson.

    About Visa Commercial: Visa Commercial payment solutions -- Visa
Business, Visa Corporate and Visa Purchasing -- combine payment with
information to create intelligent payment solutions that are designed to
enable business and government organizations of any size and type to reduce
costs, streamline operational and payment processes, and make more informed
business decisions. Backed by Visa's unsurpassed acceptance, Visa Commercial
products and services are designed to provide a complete way to manage
payment-related processes, including travel and entertainment and procurement
expenditures, payroll distribution, and information management. For more
information, visit www.visa.com/visacommercial.

    About Visa: Visa operates the world's largest retail electronic payments
network providing processing services and payment product platforms. This
includes consumer credit, debit, prepaid and commercial payments, which are
offered under the Visa, Visa Electron, Interlink and PLUS brands. Visa enjoys
unsurpassed acceptance around the world and Visa/PLUS is one of the world's
largest global ATM networks, offering cash access in local currency in more
than 170 countries. For more information, visit www.corporate.visa.com.




For further information:

For further information: Visa International Sabine Middlemass,
+1-650-432-8307 globalmedia@visa.com or Burson-Marsteller Carolyn Krytzer,
+1-415-591-4022 carolyn.krytzer@bm.com

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