New White Paper Identifies Top Five Trends Impacting Cash Flow Forecasting

A new Visa-commissioned white paper titled, "Trends in Cash Flow
Forecasting," outlines the current state of short-term cash flow
forecasting, identifies and analyzes five major trends that are
impacting cash flow forecasting, and provides four categories of best
practices.

Corporate treasurers worldwide are now focusing attention on cash
flow forecasting for two reasons, according to the paper. First, there
has been an increase in the sophistication of forecasting processes
due to recent improvements in information technology and advances in
forecasting techniques. Second, the problems facing forecasters have
grown more challenging as a result of increased exports and the
heavier use of debt in financing.

The paper, released today at the annual EuroFinance International
Cash and Treasury Management conference in Vienna, Austria, focuses on
short-term forecasts that cover the next twelve months and are the
main concern of corporate treasury departments.

"Forecasting is critical for companies of all sizes to minimize
risk, maximize use of working capital and organize returns on
investment: yet companies have found it difficult historically to
develop accurate forecasting models because of the inability to
acquire quality information," said Aliza Knox, senior vice president,
Visa Commercial, Visa International. "Several of the cash flow
forecasting trends favor electronic payments and payment cards because
they provide direct access to easily categorized revenue and spending
data."

The five key trends impacting cash flow forecasting are:

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1. Improving technology is simplifying forecasting process: Firms
are using better information systems to simplify and enhance
the forecasting process.

-- Firms are coming to increasingly rely on treasury
information systems (TIS) and to make less use of
spreadsheets. TIS offer advantages because they maintain one
central forecast, reduce error-prone manual data entry,
enable greater security controls, provide a clear audit
trail, and can easily include direct data feeds from other
sources that can be used in preparing the forecast.

2. Forecasting function is centralizing: Forecasts are being
produced more often by corporate headquarters rather than at
the business-unit level.

-- TIS facilitate the transfer of information from
business-units to headquarters. In centralized forecasting,
a small number of employees at headquarters can focus all of
their time on forecasting, likely enabling them to become
experts in managing new techniques to generate superior
forecasts in less time. In addition, centralization allows
for uniformity across forecasts of different divisions.

3. Tougher regulations are driving better-informed forecasts:
Spillover effects of tighter regulatory controls are leading to
more informed and data-driven forecasts.

-- Accurate forecasting can be a critical component of
regulatory compliance, and securities regulations in some
countries have directly increased the importance of the
forecasting function.

4. New forecasting techniques becoming available: New techniques
based on statistical and economic analyses are increasingly
being adopted.

-- These techniques include: a) project-level forecasts that
are more accurate than company-level forecasts;
b) driver-based forecasting, which enables firms to evaluate
the effects of economic environment changes; c) "Cash Flow
at Risk," which permits firms to evaluate the risk that a
disastrous event could lead to a cash shortage;
d) incorporating forecasts into the investment maturity
decision-making process to reduce banking transactions'
costs; and e) cross-country credit analysis and
international macroeconomic modeling to control
export-generated cash flow volatility.

5. Private equity deals are increasing the need for accurate
forecasts: The drive for better forecasting is strengthening,
especially in firms purchased by private equity buyout
investors.

-- Firms acquired by private equity buyout funds typically
carry heavy debt loads. These firms need to produce
especially accurate forecasts to comply with lending
covenants and to avoid bankruptcy risk.
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"The benefits created by good cash flow forecasting practices
range from significant efficiency improvements at cash-rich firms to
potential protection from insolvency at financially constrained
enterprises," said Dr. Mark J. Garmaise, PHD, UCLA Anderson School of
Management, author of the cash flow forecasting white paper. "The
trends suggest that companies would be wise to incorporate the cash
flow forecasting model more fully into their operational planning
strategy to maintain a desired level of liquidity regardless of
unforeseen activities."

Best Practices

The white paper describes four categories of best practice from
analysis of the five cash flow forecasting trends, including:

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1. Systems: Integrated firm-wide treasury information systems,
such as third-party treasury workstations or enterprise
resource planning treasury modules, are best. Spreadsheet-based
forecasting is increasingly outdated.

2. Forecasting Techniques: Driver-based forecasting, using either
simulations or regressions, is best, especially when combined
with scenario or statistical analysis that provides a sense of
the expected future cash flow as well as its range.

3. Payment Methods: Some form of electronic payment system,
ideally one including integration with the accounts of
customers and suppliers, is best. These payment methods can be
incorporated into new forecast technologies. Electronic payment
systems also provide data that is useful for
information-intensive forecasting techniques.

4. Job Function: The attention of the treasury staff should be
focused on an analysis of the determinants of cash flow
variability, not on data collection. Improved technology
automates the previously all-consuming task of assembling data,
leaving forecasters with time for more careful study of cash
flow dynamics.
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Benefits of Electronic Payments Over Checks

According to the paper, several of the trends in cash flow
forecasting favor the use of electronic payments and payment cards
over checks. For example:

-- Improved technology and systems integration makes it more
attractive to use both electronic payments and payment cards,
because these methods of payment can be incorporated into
firm-wide computing systems.

-- Centralization favors electronic payments and cards for
receivables and payables, because of the direct access to
information on future promised cash flows that is provided.

-- Tougher regulations favor electronic payments and cards,
because they provide control over incoming funds, and allow
companies to limit access to these funds to authorized
parties. In addition, limiting corporate purchases to
electronic payments and cards makes it easier for firms to
monitor cash outflows and prevent unauthorized expenditures,
because these payments are easier to document and provide an
audit trail.

-- Advanced new forecasting techniques suggests use of electronic
payments and cards, because they offer disaggregated revenue
and spending data that can easily be categorized and studied.

Methodology

To analyze the current state of cash flow forecasting and
developments that are likely to be important in the future, Visa
commissioned Dr. Garmaise, an expert on corporate finance and banking,
to identify and analyze more than 75 pieces of secondary research. Dr.
Garmaise also conducted primary research interviews with six
organizations of varying sizes across several industries worldwide to
learn more about their current and future cash flow forecasting
processes.

To view the entire cash flow forecasting white paper, visit
www.visa.com/cashflowforecasting.

Notes to Editors:

About Dr. Mark J. Garmaise, author of the cash flow forecasting
study: Dr. Garmaise, an expert on corporate finance and banking, is
currently Assistant Professor of Finance at the UCLA Anderson School
of Management in Los Angeles, California, where he has been teaching
for the past six years. Among his publications are "Informal Financial
Networks: Theory and Evidence," (with Tobias Moskowitz), Review of
Financial Studies, and "Confronting Information Asymmetries: Evidence
from Real Estate Markets," (with Tobias Moskowitz), Review of
Financial Studies. Dr. Garmaise was an Assistant Professor at the
University of Chicago Graduate School of Business before joining the
faculty at UCLA Anderson.

About Visa Commercial: Visa Commercial payment solutions -- Visa
Business, Visa Corporate and Visa Purchasing -- combine payment with
information to create intelligent payment solutions that are designed
to enable business and government organizations of any size and type
to reduce costs, streamline operational and payment processes, and
make more informed business decisions. Backed by Visa's unsurpassed
acceptance, Visa Commercial products and services are designed to
provide a complete way to manage payment-related processes, including
travel and entertainment and procurement expenditures, payroll
distribution, and information management. For more information, visit
www.visa.com/visacommercial.

About Visa: Visa operates the world's largest retail electronic
payments network providing processing services and payment product
platforms. This includes consumer credit, debit, prepaid and
commercial payments, which are offered under the Visa, Visa Electron,
Interlink and PLUS brands. Visa enjoys unsurpassed acceptance around
the world and Visa/PLUS is one of the world's largest global ATM
networks, offering cash access in local currency in more than 170
countries. For more information, visit www.corporate.visa.com.