The Evolution of Treasury Management System with Artificial Intelligence

PwC, 2019 Global Benchmarking Survey stated that cash forecasting continues to be a top priority for treasurers. But it can be equally challenging. According to HighRadius’ survey, Accounts Receivable is one of the most difficult cash flow categories to forecast for head office finance and treasury teams (57%), followed by Accounts Payable (20%).

Why are Accounts Receivable Difficult to Forecast

Accounts Receivable forecasting is particularly challenging as it is entirely in the client company’s hands. While payment terms are agreed upon, customers might not always adhere to them, adding an element of unpredictability to the process.

Challenges in forecasting A/R difficult are:

• Sheer volume of invoices
• Range of systems creating data variability
• Number of entities involved

Why are Accounts Payable Difficult to Forecast

In the case of A/P, the forecast is accurate in the short-term, up to the next 2 to 4 weeks. However, in the long run, the accuracy takes a hit because of uncertainties revolving around payments.

Challenges in forecasting A/P difficult are:

• Difficulty in predicting payments for which invoices haven’t arrived yet from suppliers
• Increased variability during seasonal rebate programs
• Volatility in payment dates and timings during CAPEX projects

Spreadsheets have been the most widely used cash forecasting tool for a long time, but it isn’t foolproof. It holds certain limitations such as:

• Completely manual and consumes a lot of time
• Error-prone
• Difficulty in gathering the right datasets and consolidating them
• Frequently requires human adjustments and inputs
• Inability to  compare variance

Due to the limitations, forecasts generated are inaccurate and unreliable. This leads to poor borrowing and investing decisions. Technologies such as AI can make a significant impact here by generating accurate forecasts for making confident decisions on borrowing and investments.

Treasurers now sit at the heart of a digital ecosystem that is already enabling some corporate treasuries to make smarter, more data-driven approaches to core processes and better support the commercial side of the business.

As the digital ecosystem becomes more automated, connected, and integrated, treasury has better visibility of data and can make better business decisions.

Emerging treasury technologies include:

• Cloud
  • All the data is stored in a cloud server away from office locations and is accessed by employees online.
  • It enables treasurers to access data remotely from different locations and ensures that regional treasuries can collaborate at any time.

• APIs
  • APIs are software interfaces that redefine how applications interact by enabling data transmission between one software to another.
  • It is used to enable a direct link to banks to gather real-time information.

• AI/ML
  • Artificial Intelligence utilizes self-learning algorithms to identify patterns and changes and guides the treasury on what to do.
  • It can track anomalies in transactions and stop them or find shifting behaviors in operations and suggest better alternatives.
  • It helps to build cash forecasts faster and with increased accuracy.

• RPAs
  • It minimizes manual efforts and maximizes business insight.
  • It can help in cash accounting or funding.

• BI/Dashboard
  • Business intelligence tools are used to collect and process large amounts of unstructured data from internal and external systems.
  • It helps to visualize data to get better insights.

• Data Lakes
  • A data lake is a system or repository of data stored in its natural/raw format, which can be uploaded into other platforms.
  • It helps to visualize and report rates, A/R, A/P, and exposures.

• Blockchain
  • It is a decentralized ledger of all transactions in a network aimed to increase speed and security.
  • It can help with cross-border payments.

These are the opportunities for treasury unlocked by AI:

• Predicting cash balances through cash forecasting
• Helping in cash flow management to optimize usage of cash and prevent avoidable debts
• Allocating investments better
• Auto-reporting on various functions like cash and risk management
• Improving FX risk management through hedging

Treasurers need to understand what functions they need to apply technology to and then easily evaluate the type of solution they should implement to improve their daily operations.