1. C-FAB! Cash Forecasting and Budgeting Presented to NACM Western Region Credit Conference October 6, 2011

2. Agenda Budgeting versus Forecasting versus Planning Defining the Planning Cycle The Role of Data Management Methods and Methodologies Two Case Studies Managing Variances Forecast Killers Planning Checklist

3. Budgeting, Forecasting, and Planning Budgeting What they assume/want to happen Forecasting What you expect to happen Planning How you respond to each Key Questions: Which comes first (ordinal)? Which is the most critical (make-or-break)? Which do you perform in your organization? Hint: These are trick questions

4. The Textbook Planning Cycle WITHIN THE CONTEXT OF A MISSION & OBJECTIVE:

5. The Reality Planning Cycle

6. Impact on Credit/Collections Priority has been placed on reacting over planning Very little time to react or plan (especially plan) Good reactions may not yield good long-term results It’s unfortunate, but reality planning may be permanent Thesis of this presentation: Cash Planning is irrelevant Superior Cash Planning = discipline and flexibility

7. Elements of Successful Planning

8. Database Management The cornerstone of successful planning Lowest cost piece of information out there—YOU ALREADY HAVE IT Fact-based Can help you manage your own expectations First level of managing expectations Should include all details of the cash process: Dates of every step: invoice, receipt, application Invoice Info Payment Type

9. Methods and Methodologies DSO Days to Remittance Days to Receipt Billing Type Customer Type Customer Location Product Sales Program Risk Profile Customer-by-customer

10. Which Approach is Right For You? Start with applying all methods to historical data Determine correlations--This is your methodology Share your results and obtain alignment

11. Case Study 1—Manufacturer Sells to distributors and directly to customers Multinational 1,600 customers New models every year No seasonality Countercyclical Product Questions: What more information do you need? How would you plan for the upcoming year?

13. DTP by Product Type

14. DTP by Prod Yr

15. DTP by Sales Prog

16. DTP by Risk (assumes risk correlates to economic cycle)

17. DTP by customer type/Loc./Prod. Yr./Sales ProgDefine correlations Calibrate to the sales forecast

18. Case Study 2—Service Provider Sells directly to business customers 3,000 customers 2-year contracts—upfront and monthly charges Rapid Growth Highly Competitive Business Questions: What more information do you need? How would you plan for the upcoming year?

20. DTP by Item Billed (upfront versus service)

21. DTP by Cust. Since

22. % Pd by Item Billed

23. % Pd by Cust. Since

24. DTP by Risk (assumes risk based on payment history)Define Correlations Calibrate to Sales based on Customer Profile

25. Managing Variances Key Point: You are planning and not predicting Requires separate database of accuracy/variances Variances should be calculated in as much detail as forecast Historical variance levels should be used to set a RANGE of expectations e.g., % of receipts/forecast Other Key Point: TELL SOMEBODY!

26. Forecast Killers Relying on a single methodology Absence of data granularity Not analyzing your own data No visibility into customer-affecting changes Not asking for information that you need Telling people what they want to hear/Accepting their assumptions

27. Concluding Points The objective is to manage expectations as well as manage to expectations Successful planning=consistency with expectations This requires a LOT of data accumulation and analysis This requires constant review, revision, and communication—over time, should yield a tight range Doing this brings you into the realm of a reliable, professional planner Maintain discipline through a checklist

28. Planning Checklist Do I have a usable database? Do I have reasonable data conclusions? Is Management aware of the data conclusions? Do my expectations agree with the data conclusions? Does Management agree with the data conclusions? Do I have a range of expectations? Does my range contain Management expectations? Do I have a reporting/assessment plan? Have I identified all possible variance influences? Do I have a plan to report/respond to variance?