UK Education Business
Short-Term (Daily) Cash Flow Model Build

The Challenge

Due to the effect of the cost-of-living crisis on private fees and policy changes on government funding, the client was concerned about potential breaches in their banking covenants. Their long-term planning model did not provide sufficient granularity regarding short-term cash flows, as they had hundreds of fee payers each month and eight funding sources, each with different payment profiles. Their creditors also had varying terms, further complicating working capital management.

The Solution

We initially conducted an in-depth analysis of their source data and identified inconsistencies across naming conventions, pricing, and segmentation that had hindered historical analysis. Our comments were fed back to the internal team, who cleaned the data and implemented our recommendations to avoid similar issues in the future.
Using the cleansed dataset, we were about to build a model with two distinct modules:

  1. Receipts—Daily receipts by customer segment were forecasted based on historical trends, with overlay functionality for new assumptions and known payments. 
  2. Payments – An in-depth analysis of supplier terms was performed and used to forecast future remittances.

The above modules were then consolidated into outputs that could feed into their monthly forecasting model, improving forecasting accuracy throughout the reporting suite.

The Outcome

The new model allowed the client to identify bottlenecks and avoid the forecast covenant breaches. The treasury team has since adopted it to optimize their working capital, while its integrated variance functionality has allowed for better identification and management of bad debt. Our work on their source data and proposed framework significantly reduced the time spent managing their ERP.

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George Pavlovic ACA
Director, Financial Modelling
Aleksandra Pavlovic FCCA
Director, Financial Modelling

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