Effective cash management is a prerequisite for the success of any business, it’s as simple as that -- a foundational principle of good business practice that’s every bit as important as having a compelling product or service to sell.
It’s especially important now given the globalization of the trade and financial supply chains, M&A activity, and the need to support multiple payment types and formats as well as the ever-increasing regulatory and fraud avoidance requirements.
Why then do so many businesses insist on continuing to use the outmoded practice of managing corporate cash in a spreadsheet? It’s a practice that requires spending inordinate amounts of time copying and pasting data from a variety of sources, only to end up with a limited, outdated view of cash position – not exactly a prime example of the efficiency needed to run a successful business.
In order to be competitive and perform at optimum levels, organizations must understand where their money is and that means having 360-degree visibility into liquidity and a solid, up-to-the-minute understanding of cash flows.
It’s a task that’s easier said than done, however, when you consider the scope and speed at which today’s business landscape operates. According to Strategic Treasurer,
Globalization has also had a tremendous impact, requiring organizations to develop new banking relationships in areas where their existing bank partners don’t operate. As a result, 34% of companies now use six or more banks and 12% use more than 21.
Factor in that only 35% of corporates reconcile more than 90% of their accounts on a daily basis and it’s clear how quickly it would impact a business to not have a clear, real-time view of global cash position.
The good news is that 64% of respondents to AFP’s “Strategic Role of Treasury” survey cite cash management and forecasting as a key area of focus for their department. It’s reassuring to know that cash management is becoming more of a priority as organizations recognize that they don’t need to be a victim of inadequate, ineffective practices any longer. Visibility and control is well within reach – they just need to know where to start
To give them a push in the right direction, here’s some guidance on how they can get the information and flexibility they need to operate at peak levels of performance:
Ensure Connectivity and Integration Between Critical Treasury & Cash Management Systems. Compounding any issues with inefficiency (like managing cash in spreadsheets) is the lack of integration across the systems where critical cash flow information lives—banks, accounting systems, payment systems and more.
While not acceptable, these challenges with integration are understandable. Geographic expansion and M&A activity creates complex banking relationships that force treasury to consolidate vast amounts of information from different banks and disparate systems, just to gain a single view of an organization’s actual cash position. Organizations generally try to manage these complexities with what are, at best, cobbled together solutions (like spreadsheets) that have far too many blind spots to be effective.
Such manual data collection and entry processes also leave little time for critical analytical activities, and it’s no wonder. It’s practically impossible to fit any other tasks into the day given the time it takes to conduct the necessary daily, monthly, quarterly and year-end consolidation and reconciliation activities.
Organizations can solve these challenges by implementing an integrated solution that makes it possible to consolidate data that has historically been segregated in disparate systems. Not only does an integrated solution free up staff to focus on the activities that enhance an organization’s finances or competitive position, it gives the treasury function much more control over the information at its disposal, leading to increased visibility and transparency.
Establish a wide, flexible network of bank partnerships. In this environment of widespread globalization, where 56% of companies are regularly making payments in three or more currencies and 39% use in excess of six, it’s more important than ever for organizations to preserve flexibility and agility in lending and deposit relationships.
For one thing, by making sure it’s possible to have seamless connectivity with a wide network of banks, treasury is empowered to make the financial alliances that are the most advantageous for their organization, which is particularly important regarding regulations. Such flexibility also makes organizations more adaptable to change, so when situations like Brexit occur, for example, companies don’t have to scramble to establish relationships with new banks in order to continue conducting business in different countries.
Create global cash visibility. The number of organizations that have acceptable levels of visibility into their accounts has stagnated in recent years, with only 66% of firms indicating that they maintain daily visibility into more than 90% of their accounts, according to Strategic Treasurer.
Not only does a lack of visibility make it impossible to optimize working capital, it also puts organizations at a tremendous risk for fraud. The longer an instance of fraud goes unnoticed, the more damaging it becomes to the business, particularly in terms of unrecoverable financial losses. In addition, the increasing use of faster payment services means that criminal activity can be carried out more quickly than ever before, significantly increasing the risk to organizations without the appropriate level of insight.
Given the expectation for treasury to have better visibility into cash flows across all dimensions, including currency, bank, country and counterparty, it’s unacceptable to think that any organization doesn’t have a complete picture of their cash position at any given time. To gain control, organizations must ensure up-to-the-minute visibility into all available funds. This will make cash flow forecasting and liquidity management more effective because they’ll be based on real time information.
Gain global flexibility with liquidity. The role of treasury today bears little resemblance to its counterpart from a decade ago.
Historically a function dedicated solely to risk and cash management, treasurers are now bearing the brunt of even broader responsibilities, with CFOs increasing the department’s responsibility for payments and payables and expecting them to function as a liquidity risk management center as well as a strategic adviser to the business.
To fulfill those obligations, it’s necessary to have the flexibility of global liquidity management. This gives organizations the ability to adjust both internally and externally to threats and opportunities as they arise, because when liquidity is visible and accessible, organizations can make investments in beneficial assets or mergers and acquisitions. They’re also in a better position to cope with unexpected risks and changing circumstances.
