ABSTRACT
Cash forecasts are important in the financial management of a business and are central to many decisions. They are normally prepared on different time-scales and there are different methods associated with these timescales. There are two main methods of preparing cash forecasts, the receipts and payments method and the sources and uses method. The reliable cash forecasts are essential in order to minimise idle cash balances and reduce loan costs and hence improve results. The cash forecast has been prepared by reliable colleagues in subsidiaries or other group functions, the treasurer should examine the forecasts submitted for commercial sense and internal consistency. One way to ensure liquidity is to maintain large cash balances or arrange necessary borrowing facilities, which may be expensive, but neither of these approaches will result in optimal profitability. A business experiencing severe liquidity problems would require very precise daily forecasts for perhaps the next four weeks, all prepared on a receipts and payments method.
