What is a Cash Conversion Cycle?

24-08-2022 | treasuryXL | CashAnalytics | LinkedIn |

Did you know that on treasuryXL you can find information on all relevant treasury topics? One of the concepts you can find information on is the Cash Conversion Cycle.  A business’s cash conversion cycle (CCC) is a measurement of how much time it takes to turn a cash investment in the business into a cash return in the form of sales. CashAnalytics can tell you all about how to calculate your CCC, what makes a good/bad CCC and how to shorten your CCC.

Original source

Find out:

  • How to Calculate Your Cash Conversion Cycle

  • What Is a Good Cash Conversion Cycle?

  • How to Shorten Your Cash Conversion Cycle (Sustainably)

  • Sustainable CCC Improvements Require Reliable Real-Time Data

Read what Cash Conversion Cycle is all about


Every CFO Needs to Track These 8 Cash Flow KPIs. Here’s why.

03-08-2022 | treasuryXL | CashAnalytics | LinkedIn |

Companies shut their doors for a wide range of reasons — but often, finances force leaders to close their business. Aisling McGrath, Senior Marketing Manager at CashAnalytics, explains to us 8 key performance indicators a CFO needs to use in order to analyze cash flow and minimize financial risks.

Original source

According to CB Insights, 38% of businesses fail because they ran out of cash and were unable to raise new capital. Another article by Formulate shows that previously successful companies fail due to financial factors like lack of funding, mounting debts, huge pension deficits, and more.

With stakes that high, it’s important that you keep track of your company’s cash inflow and outflow. Cash flow KPIs — when evaluated regularly — are a CFO or financial controller’s most powerful measure of underlying market valuation and profitability.

To analyze your cash flow and minimize financial risks, use these eight key performance indicators.

1. Operating Cash Flow

What Is Operating Cash Flow?

Operating cash flow (OCF) is the cash your business generates from its day-to-day operations, excluding investing and financing activity. This financial KPI shows you the number of times your company is able to pay up debt in any given timeframe.

Also known as cash from operating activities (CFO) or net cash from operating activities, operating cash flow is typically the first section shown in a cash flow statement.

How to Calculate Operating Cash Flow

Operating Income + Depreciation – Taxes + Change in Working Capital = Operating Cash Flow


Cash from operating activities is a key indicator of your company’s ability to generate cash. By monitoring this financial metric, you’ll identify income and expense sources — then double down on generating and maintaining the cash you need for a smooth business operation.

Operating cash flow is also a measure of financial success because it shows whether your core business operations are booming, and it directly influences liquidity.


Operating cash flow focuses only on basic business activities like providing services or manufacturing and selling products. The metric doesn’t account for investment revenue, expenses, or long-term capital expenditures, so it gives an incomplete picture of the cash status.

Another downside to this cash flow KPI is that it does not assess your company’s true liquidity position. Operating cash flow does not provide long-term liquidity visibility. You can only tell your firm’s cash balance per day.

2. Free Cash Flow

What Is Free Cash Flow?

Free cash flow (FCF) is the money your company has left after deducting operating expenses, capital expenditure, and major investments. The last one or two sections of cash flow statements often cover FCF and its different variations.

How to Calculate Free Cash Flow

Operating Cash Flow – Capital Expenditures = Free Cash Flow


Free cash flow gives a clear picture — to your finance team, business owners, investors, and creditors — of cash that you can mobilise at any given time. You’ll know if your company is able to:

  • Pay monthly dues (debt interest and investor dividends).
  • Carry out expansion activities like buying or setting up a new plant, introducing a new product line, hiring more staff, and more.
  • Go after short-term investments like money market accounts, treasury bills, certificates of deposits, and others.
  • Collect fresh loans or lines of credit.
  • Attract new investors or partners.
  • Influence favourable stock pricing.


While free cash flow is a good measure of profitability, it shouldn’t be used as a standalone indicator.

High free cash flow doesn’t always mean good financial standing — it could be an indicator of inadequate investments in business growth. At the same time, low free cash flow could be a symptom of growth and expansion. For accuracy, always consider free cash flow alongside other KPIs like operating cash flow and cash conversion cycle.

Capital expenditure changes from year to year and across industries. To get a good picture of financial stability over time, observe free cash flow for at least two years. Beyond that, you should also keep in mind industry realities and standards like the average profitability or break-even window.

3. Cash Flow Per Share

What Is Cash Flow Per Share?

Cash flow per share — also called free cash flow to the firm (FCFF) — is the amount of free cash flow on each outstanding share of your company’s stock. This metric appears as a ratio and shows a company’s earnings per share (EPS) less taxes, depreciation, and amortization.

When you have a high cash flow per share, it means your share value will be potentially high. But if your cash flow per share is low, the odds are that share value and earnings will remain down.

How to Calculate Cash Flow Per Share


Financial analysts prefer cash flow per share to earnings per share because the former is difficult to manipulate. Cash flow per share accounts for irregular expenses — like depreciation and amortisation — and excludes non-cash earnings like pending accounts receivables.

As opposed to earnings per share, cash flow per share makes it harder for bad actors to alter your company’s cash flow numbers. Because of this reality, cash flow per share gives a more accurate picture of your business’s financial strength and business model vitality. This cash flow KPI also lets you determine your company’s ability to pay dividends and service other expenses.


One limitation of using cash flow per share is that it doesn’t show your firm’s net income because the calculation doesn’t include non-cash items. These items can only be found in the income statement or balance sheet. For proper analysis, look at your cash flow per share, income statement, and balance sheet together.

4. Cash Flow Yield

What Is Cash Flow Yield?

Cash flow yield (also called free cash flow yield) is a financial ratio that compares your company’s free cash flow to its current share value.

How to Calculate Cash Flow Yield


Cash flow yield gives a clear picture of your firm’s ability to access cash quickly. From a cash flow yield calculation, you can tell whether your company is capable of a debt repayment or dividend payment. This metric is particularly key for investors because they always want to know how well their funds are working for them.

When investors are determining whether or not to put money in a company, they may want to see up to 10 years of cash flow yield data and compare it to a treasury note covering the same period. This comparison will help investors calculate the firm’s valuation or determine when a buyout will start generating profit. If cash flow yield is significantly lower than the treasury yield, the company will be considered a poor investment.


While cash flow yield is a great way to measure your company’s financial position, you should not fully depend on it. This KPI is only truly beneficial when you combine it with a collection of other indicators like cash flow margin or return on invested capital.

5. Cash Conversion Cycle

What Is Cash Conversion Cycle?

Cash conversion cycle (also called cash cycle or net operating cycle) is a measure of how quickly your company can turn resources — outstanding sales and inventory — into cash. The cash conversion cycle accounts for the average number of days it takes your company to collect receivables and sell off inventory — plus the amount of time you have to pay bills without attracting late fees.

How to Calculate Cash Conversion Cycle


Because the cash conversion cycle reflects how quickly your firm is able to turn cash investments into returns, this metric helps you save money. You’ll be able to plan around when you expect cash inflow, so you can meet your financial obligations and avoid late payment penalties.

With a short cash conversion cycle, you can convince vendors to let you defer payment for goods. You’ll also gain the confidence to sell inventory on credit.


The cash conversion cycle is a good measure of your company’s operational and management efficiency — but it only applies to businesses with inventories.

Also, the cash conversion cycle doesn’t provide in-depth financial insight per time. But if you look at the cycle’s trend over time and in comparison with similar companies, you can:

  • Give proper reports to management and investors.
  • Work on improving the cycle time.

New investors tend to go for companies with a low cash conversion cycle because they make quicker returns. So if an investor has to choose between two companies with similar returns on current assets and shareholder equity, yours will be the best bet.

6. Cash Flow Margin

What Is Cash Flow Margin?

Cash flow margin is a ratio that shows how well your company converts its sales to cash. This ratio tells you the difference between money that has come in from sales and funds you’re still expecting — all of which make up your revenue. Because the cash flow margin compares actual money transfers to pending transactions, it’s a great measure of total revenue quality.

Say you booked a huge sale that boosted revenue but are having a hard time collecting the cash. Your revenue is up, but your cash flow margin isn’t.

How to Calculate Cash Flow Margin

Free Cash Flow/ Revenue % = Cash Flow Margin


Cash flow margin reflects the actual amount of cash you have from sales, so it is a good measure of real-time profitability. This ratio also shows operational efficiency by presenting how well your firm collects accounts receivables.


A short-term cash flow margin is prone to inaccuracy. Say your company delays accounts payables to retain cash within the business. A one-year cash flow margin analysis will be off the mark because the cash position has been unduly influenced.

But a company can only defer payments for as long as its line of credit lasts before penalties start to apply. After some time — weeks, months, or years — the firm will need to pay its current liabilities. For a more accurate perspective, stakeholders — investors, management, or creditors — should consider period-to-period cash flow margins

7. Cash Flow Return on Invested Capital

What Is Cash Flow Return on Invested Capital?

Cash flow return on invested capital (CROIC) is the amount of money your company makes as a proportion of total capital employed.

How to Calculate Cash Flow Return on Invested Capital

Free Cash Flow/Total Capital% = Cash Flow Return on Invested Capital


Cash flow return on invested capital is a great profitability gauge because it calculates returns against funds employed to generate it. To make returns from investing, you need to create and follow a solid cash management plan. So a positive cash flow return on invested capital shows the strength of your capital investment strategy.

A high cash flow return on invested capital is great, but if your returns aren’t high in the first year or two, it’s not too much of a concern. If your returns consistently decline over multiple financial periods, though, it’s a likely sign of poor cash flow management.


Capital return on invested capital does not show which business activities are generating what value. This reality makes it hard to accurately monitor and influence cash inflows — especially one-off events like net income from a land or business division sale.

8. Net Debt to Free Cash Flow

What Is Net Debt to Free Cash Flow?

Net debt to free cash flow is a measure of how many years of free cash flow you’d need to repay your current outstanding debt.

How to Calculate Net Debt to Free Cash Flow

Net Debt/ Free Cash Flow = Net Debt to Free Cash Flow


Net debt to free cash flow shows your ability to pay off debt quickly, so it’s a great indicator of financial stability (or lack of it.)


Typically, needing a few instead of many years to pay off outstanding debt is a sign of economic resilience because it means either of the following:

  • You owe very little.
  • Your cash conversion cycle is short.

But sometimes, too little debt could be a red flag because it means your firm is not investing enough in ongoing growth to remain competitive.

Beyond Tracking Cash Flow KPIs, Use CashAnalytics for Quick Scenario Analysis

Cash flow KPI tracking allows you to regularly gauge your business’ financial health and minimise risk. But even with this monitoring, the unexpected can happen — like a pandemic or recession — and destabilise your business.

Prepare for potential volatility with scenario planning. With CashAnalytics’ robust suite of analytics features, you can quickly access financial data — and conduct scenario analysis. Book a free demo to see how our tool helps you track and predict cash flows.


CashAnalytics Achieves ‘Built for NetSuite’ Status

05-07-2022 | treasuryXL | CashAnalytics | LinkedIn |

CashAnalytics has officially achieved “Built for NetSuite” status. “With the CashAnalytics SuiteApp, NetSuite users can spend less time crunching the numbers and more time analysing cash flow”, says Conor Deegan, CEO & Co-founder at CashAnalytics. By leveraging real-time data from NetSuite, CashAnalytics helps finance teams spend less time manually compiling data and more time managing cash flow and guiding financial strategy. Read last week’s press release below.

New SuiteApp for cash flow management meets Oracle NetSuite SuiteCloud Platform development standards and best practices

DUBLIN, Ireland – June 29, 2022 – CashAnalytics, a cash flow management platform for expanding businesses, today announced that its SuiteApp has achieved ‘Built for NetSuite’ status. The new SuiteApp, built using the Oracle NetSuite SuiteCloud Platform, enables businesses to adapt and thrive by helping them improve cash flow and stay in control of their liquidity.

“With the CashAnalytics SuiteApp, NetSuite users spend less time crunching the numbers and more time analysing cash flow,” said Conor Deegan, co-founder & CEO, CashAnalytics. “CashAnalytics enables businesses to see their cash position across the business with one click or drill down at the transaction level in an instant. This increased visibility helps uncover new ways to improve business performance and helps leadership make confident decisions.”

By leveraging real-time data from NetSuite, CashAnalytics helps finance teams spend less time manually compiling data and more time managing cash flow and guiding financial strategy. The cloud-based platform provides a complete view of a business’s current and future cash position by simplifying and automating the process of cash forecasting and liquidity planning. By reducing administrative tasks, CashAnalytics enables finance teams to confidently plan for what’s ahead with less work.

“Businesses must effectively manage cash flow to maintain daily operations and adapt to changing business conditions,” said Guido Haarmans, VP, SuiteCloud Developer Network and Partner Programs, Oracle NetSuite. “This new SuiteApp extends our robust solution for cash flow management, helping NetSuite customers to further automate cash flow management and forecasting.”

Built for NetSuite is a program for NetSuite SuiteCloud Developer Network (SDN) partners that provides the information, resources, and methodology required to help them verify that their applications and integrations meet NetSuite standards and best practices. The Built for NetSuite program is designed to give NetSuite customers additional confidence that SuiteApps, like CashAnalytics, have been built to meet these standards.

For information about Built for NetSuite SuiteApps, please visit For more information about CashAnalytics, please visit

About SuiteCloud

Oracle NetSuite’s SuiteCloud platform is a comprehensive offering of cloud-based products, development tools, and services designed to help customers and commercial software developers take advantage of the significant economic benefits of cloud computing. Based on NetSuite, the industry’s leading cloud-based financials / ERP software suite, SuiteCloud enables customers to run their core business operations in the cloud, and software developers to target new markets quickly with newly-created mission-critical applications built to extend the power of NetSuite.

The SuiteCloud Developer Network (SDN) is a comprehensive developer program for independent software vendors (ISVs) that build apps for SuiteCloud. All available and approved SuiteApps are listed on, a single-source online marketplace where NetSuite customers can find applications to meet specific business process or industry-specific needs. For more information on SuiteCloud and the SDN program, please visit

About CashAnalytics

CashAnalytics is a cash flow management platform for growth-focused businesses, designed to help treasurers and finance managers improve their free cash flow and stay in control of their liquidity as their business continues to expand. By automating the administrative tasks that cause cash and liquidity forecasting to take unnecessary time and effort, CashAnalytics enables finance teams to focus on adding real value to the business. The CashAnalytics software helps them take control over their working capital and assists them to achieve clear visibility of their cash situation.

Oracle, Java and MySQL are registered trademarks of Oracle Corporation.


Data-Driven Forecasting Automation Opportunities

27-06-2022 | treasuryXL | CashAnalytics | LinkedIn | Data-driven cash flow forecasting is typically highly automated. Automated data heavy lifting and analysis are necessary to make the process sustainable. Read now the latest section of this guide to adopting data-driven cash forecasting in your business.

TIS acquires Cashforce, an AI-powered provider of cash management and forecasting solutions.

17-06-2022 | treasuryXL | Cashforce | TIS


Revolutionizing Global Liquidity Management for Treasury and Finance


Treasury Intelligence Solutions (TIS), a global leader in enterprise payment optimization, today announced their acquisition of Cashforce, an AI-powered provider of cash management and forecasting solutions.

This acquisition will see Cashforce’s leading cloud solution – currently deployed at many of the largest and most sophisticated corporate treasuries in the world – become integrated with TIS’ SaaS payments platform. This unified solution will provide enterprises with an unmatched suite of capabilities for cash management, global payments, and fraud mitigation along with superior connectivity, workflows, and reporting functions.

Over the past few years, TIS and Cashforce have collaborated closely to provide a complementary offering for treasury and finance teams. These efforts were met with immediate success in the market as demand for improved cash management and forecasting tools has risen sharply. Now, TIS’ acquisition of Cashforce presents the perfect opportunity to integrate both products together as part of a more complete offering.

For the thousands of enterprise treasury and finance practitioners who currently use TIS, this acquisition provides access to faster and more accurate cash reporting, forecasting, and working capital management. To date, cash positioning and forecasting are still being performed manually by many treasury groups, which represents a major pain point for CFOs and business leaders when attempting to make strategic financial decisions. However, the robust capabilities provided by Cashforce eliminate many of these inefficiencies and ultimately enable companies to gain quick and accurate insights into their financial position based on reliable payments and liquidity data.

According to Erik Masing, Group CEO of TIS, “Cashforce has been a premier partner of TIS for several years and has contributed significantly to the cash forecasting and management capabilities we offer clients. The acquisition is a natural extension of our business and will allow TIS to further integrate Cashforce’s solution with our platform in order to offer advanced forecasting and data management capabilities to all our clients. This means enterprises can significantly reduce complexity in their global payments and cash management tech stacks by leveraging standardization and transparency afforded by a single, elegant solution.”



For Cashforce, the acquisition means that existing clients can now supplement their robust forecasting capabilities with TIS’ industry-leading payments and bank connectivity features. As explained by Nicolas Christiaen, Founder and CEO of Cashforce, “Giving businesses complete visibility over their cash and liquidity data has always been the core objective of Cashforce. While we have spent years perfecting our capabilities in this regard, TIS has been strengthening their suite of payments, bank connectivity, and cash management tools. When combined, these two sets of capabilities form the ideal solution for global treasury and finance teams to achieve full control and visibility over their entire payments and liquidity architecture – including all entities, back-office systems, and banks.”

With the added capabilities of Cashforce’s solution, TIS now offers a single, scalable cloud platform for clients to address needs in the following areas:

  • End-to-end payment processing and bank statement management
  • Global bank connectivity and financial messaging
  • Real-time cash positioning and liquidity management
  • Multifaceted cash forecasting, cashflow analytics, and working capital management
  • Bank account management and bank documentation management
  • Payment compliance and sanctions screening control
  • Treasury security, regulatory compliance, and fraud mitigation tools

For more information on TIS’ acquisition of Cashforce and the advantages our combined solution will provide to enterprise treasury, finance, and executive teams, contact us at [email protected] or by using the information found on our website.


About TIS

TIS is reimagining the world of enterprise payments through a cloud-based platform uniquely designed to help global organizations optimize payments, manage cash visibility, and mitigate risk. Corporations, banks, and business vendors leverage TIS to transform how they connect global accounts, collaborate on payment processes, execute outbound payments, analyze cash flow and compliance data, and improve critical outbound payment functions. With $2 trillion in payments processed annually, the TIS corporate payments platform helps businesses improve operational efficiency, lower risk, manage liquidity, gain a strategic advantage – and ultimately achieve enterprise payment optimization.

Visit us for more information at





Closing Loops: Connecting FX Hedging and Cash Forecasts

08-06-2022 | treasuryXL | Cashforce | LinkedIn |


How one member uses Cashforce to save time and money on FX trades—and helped create an automated hedging process.


One assistant treasurer at a recent NeuGroup virtual interactive session said that her primary project for 2021 is “to make treasury as no-touch as possible.” This is a common theme for treasurers recently, though it’s not always clear where to start. Her first step was to seek potential connections in existing processes and platforms—which led to an overhauled and streamlined process for foreign exchange hedging.
  • The member already was using Cashforce, a fintech that allows deeper analysis of cash flow, to assist in cash flow forecasting, and saw potential in connecting it to Citibank’s CitiFX Pulse platform through the company’s TMS.
  • Through collaboration with Cashforce, Citi and her TMS, she was essentially able to turn the company’s hedging policy into an algorithm that reads the forecast and will potentially execute or propose trades all on its own.

From forecasts to forex. The member said this is only possible because Cashforce can forecast at a high level of granularity. The AT said she was “really lucky” that the tools work together so well.

  • “The forecast at that level of detail is a forecast in document currency,” she said. “And because I can have forecasting at nearly an invoice level, I know what that currency is going to be.”
  • Through the forecast, she said, the company is able to see what its FX position is going to be. “Then if I layer over what hedge I might already have in place, it will be able to tell me what are my gaps,” she said.
  • “The idea is to send it out so that we could auto-trade to fill the gaps below a certain threshold, let’s say 100 grand or less, and review above that just to check the data before we trade.”

A closed loop. Nicolas Christiaen, Cashforce’s CEO, said that, before this project, the member’s process was “very disconnected,” but all it took was connecting the dots.

  • “On the data input side, the ERP, TMS, P&L and bank statements are now put through [Cashforce’s] transformation layer, which results in a cash flow forecast,” he said. “As is very specific in this case, it’s a forecast by currency, by month.”
  • Currently, the company then uploads this forecast back into its TMS for review, and manually executes FX trades based on the company’s hedging policy.
  • “When these hedges are executed, the hedge amounts will pass back into Cashforce via the TMS, closing the loop,” Mr. Christiaen said.

A step further. With the proposed system that the member has designed with Citi, the company could include its hedging policies as a rules-based program in CitiFX Pulse that can read this forecast.

  • It would then “put in place the instruments used for the hedges for the thresholds that need to be taken into account,” Mr. Christiaen said. “Which ultimately results in a proposal.”
  • The chart below demonstrates the vision: As the data feeds into Cashforce, which outputs a forecast, that forecast is reviewed by the member and uploaded to CitiFX Pulse, which can automatically execute or propose FX hedges.

Constant change. Automation is “an awful lot to bite off,” the member said, and recommends starting slow on this kind of process:

  • The first step is to test what systems you already have. “A lot of us have pockets in the organization of different systems that can be leveraged. Some of them can’t do what they say they can or aren’t quite what you need—but sometimes you get lucky, as we did.”
    • She said it is also an opportunity for treasury to work with fintech partners to build exactly what it needs.
  • Collaboration and clear communication with IT is “super important,” which she learned the hard way. “Despite really clear instructions from Cashforce on the size of server we would need, [IT] gave us a quarter of that size and we now need a bigger size,” the AT said.
  • She warns that, although automation opportunities are promising, it’s not always smooth sailing. “Be aware of the opportunities, but also be aware of the work: automation is doable but takes an awful lot of time.”
  • “As the business changes, the structure changes as well,” she said. “The only constant within treasury is change.”

Article originally published by Neugroup here.



Recording Live Discussion Session | More reliable cash forecasting in a fraction of the time

01-06-2022 | treasuryXL | CashAnalytics | LinkedIn |


Recently, treasuryXL partnered with CashAnalytics on a LIVE discussion session about how much time, effort, and money can be saved by adopting a data-driven approach to cash forecasting.

During this session, Conor Deegan CEO of CashAnalytics was joined by Ron Wessels, owner of Term Finance and Interim Head of Tax & Treasury at Systal Technology Solutions, and Pieter de Kiewit, Owner of Treasurer Search. They have presented battle-tested methods for increasing the reliability of your data, breaking free from tedious forecasting processes, and freeing up more of your time for analysis.

Click on the image above to view the recording and learn how cash flow automation


Cuts your manual workload and reporting timelines by over 90%

Provides detailed insight into transaction-level data across all your entities

Frees you from Excel-based processes that are riddled with human errors


Forecasting Through Disruption

11-05-2022 | treasuryXL | Cashforce | LinkedIn |


Despite the disruption to customer behaviour brought by the Covid-19 crisis, Pearson developed a consolidated forecasting process that has enabled it to speed up invoicing, accelerate £60m in cash flow and meet its 2020 targets.


Cash flow forecasting has long been recognised as a major challenge for corporations – and learning company Pearson, which has over 20,000 employees and reported sales of £3.4 billion in 2020, is no exception. “One of the challenges with forecasting is to understand what your assumptions are when producing the forecast,” explains Group Treasurer James Kelly. “When you’ve got lots of people producing forecasts independently, and then consolidating them, you need to have a consistent approach.”

Getting people to produce a forecast on time can be difficult, while treasury teams often spend precious time pursuing clerical accuracy. And as Kelly adds, “it is important to have enough detail in your actuals to really understand whether the hypotheses that were ventured in your forecast have actually come to pass.”

Forecasting during a pandemic

The latter is particularly important in times of uncertainty – and few things are as unpredictable as the onset of the Covid-19 pandemic. For many organisations, the crisis meant that cash flow forecasting became significantly more challenging overnight, not least because disrupted customer behaviour meant that forecasts based on historical sales patterns could no longer be relied upon.

For Pearson, with the company’s professional test centres forced to close due to lockdowns, a major challenge came in the form of refunds that had to be issued to customers for tests that had been booked in advance – a situation that was complicated by the differing ways that customers could respond. Some rebooked straight away; some requested an immediate refund, and others waited for a couple of weeks before requesting a refund. And when requesting a refund, customers could either apply to Pearson directly, or request a refund via their credit card companies. All these different scenarios impacted the company’s short-term modelling.

The path to better forecasting

While the challenges were considerable, Pearson’s treasury had already been on a journey to more effective forecasting before the pandemic began – indeed, the automation of cash forecasting formed part of a treasury and cash management optimisation project that won a EuroFinance Treasury Excellence Award in 2019. The company subsequently adopted Cashforce’s AI-powered forecasting system, and continued to work on improving its processes. However, when the pandemic started it was clear that a more comprehensive approach was needed.

“What was interesting about Covid was that some of the basic models that we built around predictable cash flows broke,” Kelly comments. “We were able to keep using some of our models for things like payroll – but on the receipt side, a lot of things that had previously been predictable now became unpredictable.” What this meant was that the forecasting ability of the system almost became redundant – “and the benefits of the solution became more about hypothesis testing, and as a consolidation engine that allows you to build different scenarios.”

With the onset of the pandemic, each business produced a high, medium and low sales forecast, which the treasury team used to build its own set of forecasts. While this exercise was initially carried out using Excel, the treasury’s Cashforce-based 12-week forecast demonstrated good levels of accuracy, as well as integrating with key group systems. As such, the system was selected as the basis for the new approach to producing short, medium and long-term forecasts in 16 categories, later expanded to include 120 subcategories.

Building a map of cash flows

By combining this data with information from the company’s ERP system, Pearson has been able to generate detailed reports, test hypotheses and converge its low, medium and high scenarios, thereby building a detailed map of what is happening with cash flows.This proved useful early in the crisis when predicting how many customers would opt to request an immediate refund and re-book later. After initially modelling a range of scenarios, Pearson then used data from the first week to narrow the range. “Overall, we saw a significant proportion of customer request refunds in the first two weeks, mainly through their card companies,” comments Kelly. “We then started to see a stabilisation. By the end of the year, advance bookings were back to their normal level, with significant pent-up demand for many tests.”

Pearson’s functional currency is GBP, so with considerable variability in the company’s US profits another question was how to use the forecasting information to hedge currency risk. Again, this drew upon the low, medium and high scenarios: forward contracts were used to hedge committed or highly probable foreign currency flows for the low scenario, with collars and options used to provide protection for the medium and high scenarios.

Benefits of the project

Pearson has seen numerous benefits as a result of its enhanced forecasting process. Preparing forecasts centrally has freed up significant time for the operating companies, as well as enabling forecasts to be updated daily, instead of weekly or monthly. And Kelly notes that forecasts are now significantly more accurate than they were in 2019, despite uncertainty relating to the pandemic.

Further, Pearson has been able to use insights from the forecasting process to drive better performance in its working capital metrics – in particular, lower DSO, lower variability in DSO, and faster invoicing speed. These initiatives accelerated over £60m of cash flow in 2020, enabling Pearson to achieve its objective of delivering operating cash flow of over £300m, despite the pandemic.

Above all, the crisis has acted as a catalyst for Pearson to rethink the nature and purpose of forecasting. As Kelly concludes: “Whether the forecast is right or wrong becomes less important than understanding why it’s right or wrong. So the game we were playing wasn’t to get the forecast right on any particular day, but to have a good understanding of the business over time – which then enables you to get it right.”

Pearson will be presenting at the 30th anniversary International Treasury Management Virtual Week from Sept 27 – Oct 1. Registration is free for corporate treasurers. Click here to find out more and reserve your place.

Register free



Cash Flow Forecasting Methods to Choose from

04-05-2022 | treasuryXL | CashAnalytics | LinkedIn | The number of forecasting methods available might seem infinite. When a broad range of statistical, demand, driver, and AI/ML forecasting techniques are considered, it’s hard to know where to start.

Reminder Live Discussion Session | More reliable cash forecasting in a fraction of the time

27-04-2022 | treasuryXL | CashAnalytics | LinkedIn |


A friendly reminder that tomorrow at 3 PM CET (April 28th), we’ll be collaborating with CashAnalytics.

Date & time: April 28, 2021 at 3 pm CET/ 2 pm GMT | Duration 45 minutes

Join Pieter de Kiewit (Treasurer Search), Ron Wessels and Conor Deegan (CashAnalytics) who will talk about how cash flow automation can:

👉 Cut your manual workload and reporting timelines by over 90%

👉 Provide detailed insight into transaction-level data across all your entities

👉 Free you from Excel-based processes that are riddled with human errors Register now so you don’t miss out on this valuable discussion from industry leaders with over 65+ years of combined experience!


Click on the banner for registration.

Meet the speakers

Conor Deegan

CFO and Co-Founder

Pieter de Kiewit

Treasurer Search

Ron Wessels

Group Treasurer

Join Us to Learn How Cash Flow Automation…

  • Cuts your manual workload and reporting timelines by over 90%
  • Provides detailed insight into transaction-level data across all your entities
  • Frees you from Excel-based processes that are riddled with human errors