New Report Reveals Hidden Costs of Cash Flow Inaccuracies for UK Mid-Market Companies

Agicap conducted an in-depth survey of 500+ CFOs from mid-sized enterprises across the US and Europe that sheds light on the key factors for unreliable cash flow forecasts. The data points to actionable solutions that can help finance teams improve the accuracy of their forecasts.

Cash flow forecasting is the lifeblood of any company.or mid-sized enterprises, particularly in today's volatile financial environment, mastering this discipline is very critical. The newly released 2024 Agicap Mid-Market Survey provides a wealth of insights into the cash flow management practices and challenges facing these companies, with a focus on UK businesses generating between £30 and £500 million in revenue.

1. UK companies face frequent, costly cash shortages due to unreliable forecasts

The survey conducted by Agicap and the research institute Innofact reveals a clear discrepancy between the importance placed on cash flow management and the reliability of the systems many CFOs use to forecast their short, medium, and long-term financing needs and capabilities. Despite the pressing need for accuracy, an alarming 37% of UK mid-market CFOs are managing their businesses based on unreliable cash flow forecasts. This inconsistency leads directly to missed investment opportunities and higher bank overdraft costs.

On average, UK mid-market companies encounter 14 significant cash shortages (exceeding £50,000) per year, and 37% of them face this on a monthly basis. This unpredictability is costly, forcing businesses to maintain higher cash reserves and rely on expensive short-term financing options, further eroding their profitability.

2. Top challenges to accurate forecasting: Complexity and outdated tools.

A major source of these inaccuracies stems from the variability of raw material and energy costs, as well as the change in credit conditions granted by suppliers. According to UK mid-market CFOs we surveyed, this is the main explanation for the variance of their cash flow forecasts. Consequently, these are the two areas where CFOs can act to improve their cash flow forecast accuracy.

Reliance on outdated tools is also an issue. For example, 26% of companies still consolidate their cash positions manually using Excel spreadsheets—an error-prone and time-consuming process. This lack of modern tools is particularly glaring when it comes to their inability to cope with the growing complexity of businesses. In fact, as the number of bank accounts, legal entities and currencies increases, forecasting accuracy drops dramatically, by as much as 19%, as evidenced in the chart below.

3. The financial cost of unreliable cash forecasts.

Perhaps the most striking finding of the survey is the financial toll unreliable forecasts take on businesses. Mid-sized UK companies with unreliable forecasts miss out on an estimated £600,000 in financial income annually, and incur 91% higher overdraft fees compared to companies with accurate forecasts. These figures are a wake-up call to CFOs: failing to address these forecasting issues directly impacts the bottom line.

If we continue to look at overdraft charges, they are mainly caused by inaccurate cash flow forecasts. There are three main reasons for this:

• The difference between the forecast and the actual (20% on average in the UK)
• Not having daily forecasts (for 63% of UK companies)
• Not having forecasts at the level of the bank account (particularly when the company has not set up a cash pooling system)

A clear roadmap to improve cash performance and forecast accuracy

While the survey paints a worrying picture, it also highlights the opportunities for improvement. By better understanding the causes of inaccuracy in their cash forecasts, and the cost of this inaccuracy, CFOs can take immediate action and invest the necessary resources.

For example, inventory management issues and unexpected expenses are not major issues affecting the accuracy of cash flow forecasts for UK mid-market companies (compared to the other potential issues surveyed). As a result, CFOs can cross them off their to-do lists and focus on areas where they can make an immediate impact.

The same goes for investing surplus cash. Even if they do not have the resources to create daily cash forecasts at the bank account level, CFOs can work with their brokers and bankers to use overnight money market accounts to increase their financial income.

The survey delves deeper into all these areas, looking at the types of cash forecasts CFOs use or the tools they use to consolidate their bank accounts, and also highlights the differences between the habits and performance of UK mid-market CFOs and their French, German, and Italian counterparts.

Download your free copy to explore these findings in more detail, and remember to follow this blog and our LinkedIn as we will be sharing additional insights in the future.