Cash Flow Forecasting
Cash Flow Forecasting 2
Forecasting in cash flow budgeting is the prediction of cash inflows and outflows over a period of time. Predicting cash inflows and outflows has been a challenge that financial professionals have struggled with for decades.
It is also the challenge that currently faces the Chief Financial Officer and Finance Manager at Lawrence Sports. As a company, Lawrence Sports has put in place a basic cash flow forecasting plan. Based on their current cash flow forecasting plan, Lawrence Sports has outlined their expected collections; added in what they expect to collect from existing accounts receivables and reviewed their account payable balances at the end of each period. However, if Lawrence Sports were to incorporate an automated Business Performance Management (BPM) system that required real-time input from their key staff members in the areas of accounts receivables and account payable then they could better achieve their cash flow goals.
Real estate is a highly variable and cyclical industry. It depends on factors that range from changing interest rates to the time of year. A mortgage lender's success depends on its ability to predict how many loans will be processed in a given period of time and then to staff its sales, fulfillment, and servicing resources accordingly. If the bank staffs too many employees, it loses money on underused staff; if it staffs too few, the bank loses customers due to inadequate service (King, 2000).
This is the challenge that Bank of America faced. As one the largest banks in the United States, Bank of America offers a wide range of financial services targeted to both commercial and individual consumers. The bank's Consumer Real Estate (CRE) Division provides customers with home loans, processing 950,000 loans at a value of U.S.$127 billion in 2003 alone. Until July 2003, the CRE Division forecasted sales volumes by using worksheets created with...
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