5 common cash flow management challenges and their solutions for 2023

23 April, 2023
7 min
Brett Johnson, AVP, Global Enablement

Listen to the blog:

13.45 mins

Table of Content

Key Takeaways
Introduction to cash management
Five common challenges of cash flow management
How to prevent or overcome the problems with cash flow management strategies?
Benefits of automating cash flow management process

Key Takeaways

  • Standardization and centralization of cash flow management may prove to be cost-efficient. A hybrid approach can be adopted that balances it with flexibility and responsiveness to local business needs.
  • Bank data volume can be a challenge in cash management due to managing large volumes of data from multiple banks. Companies can use technology to automate the data collection and consolidation.
  • Manual and time-consuming processes such as paper-based reporting and data entry can be error-prone. The solution is to automate data collection, cash forecasting, and liquidity management.
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Introduction to cash management

Cash management is the process of keeping track of how much money comes in and goes out of the business. With the changing economic conditions, it’s no secret that cash management is one of the most crucial aspects of running a successful business. It’s the lifeblood of any company. 

While cash flow may seem straightforward, it’s not uncommon for finance leaders to struggle with it. There are plenty of challenges that they come across daily. 

In this blog, let’s take a closer look at some of the most common cash flow management challenges and their solutions to help you keep your business financed on track and thriving! 

Five common challenges of cash flow management

  1. Standardization and centralization
  2. Bank data volume
  3. Manual and time-consuming processes
  4. Settlements/transactions in multiple currencies
  5. Regulatory changes
Five common challenges of cash flow management

1. Standardization and centralization: 

Standardization is achieved by setting guidelines regarding how a product/service is created or supported, and how a business is operated, or how certain required processes are governed. The purpose of standardization is to enforce a level of consistency or uniformity to certain practices/operations. 

While standardization and centralization can provide benefits such as cost savings and increased efficiency, they can also pose challenges in cash management. One such challenge is that different business units or subsidiaries within an organization may have unique cash management needs that cannot be fully addressed by a standardized and centralized approach. 

For example, a subsidiary operating in a country with strict currency controls may require a different approach to cash management than one in a more liberal market.

Another challenge is that a centralized approach to cash management can result in delays and bureaucracy, particularly if decision-making is concentrated in a single team or location. This can lead to missed opportunities or slow responses to changing market conditions.

It is challenging to standardize and centralize cash management processes when a company deals with multiple banks, ERPs, and financial systems. Without a centralized system to synchronize various systems, standardizing can be difficult.

Solution: 

One potential solution to these challenges is to adopt a hybrid approach to cash management that balances standardization and centralization with flexibility and responsiveness to local needs. 

This might involve developing a standardized cash management framework that can be adapted to meet the unique needs of different business units or subsidiaries. It could also involve decentralizing some aspects of decision-making to local teams while maintaining centralized oversight and control.

Another solution is to use technology to automate and streamline cash management processes, such as cash forecasting, liquidity management, and payment processing. This can help to reduce bureaucracy and improve responsiveness while maintaining standardized processes across the organization.

Ultimately, the key to successful cash management is to strike the right balance between standardization and centralization, while remaining flexible and responsive to changing market conditions and the unique needs of different business units or subsidiaries.

2. Bank data volume: 

Bank data volume can be a challenge in cash management because managing large volumes of data from multiple banks can be time-consuming, complex, and prone to errors. 

For example, a company may have numerous bank accounts across different banks, each with its own reporting format, frequency, and delivery method. Collecting and consolidating this data can be a significant challenge, particularly if the company operates in multiple countries and currencies.

The volume of transactions in the system and banks tends to increase as companies grow and new units open around the world. For many of these businesses, viewing their cash balances across multiple entities and geographies is difficult, especially in a decentralized environment.

Solution:

One solution to this challenge is to use technology to automate the data collection and consolidation process. 

This might involve implementing a cash management system that integrates with multiple banks and provides a single, standardized view of cash positions and transactions across all accounts. By automating the data collection and consolidation process, companies can reduce the risk of errors, improve efficiency, and gain greater visibility and control over their cash positions.

Another solution is to standardize reporting formats and frequency across banks. This can help to streamline the data collection and consolidation process and make it easier to compare and analyze data across different banks and accounts. For example, a company might require all banks to provide daily reporting in a standardized format, with specific fields and data points.

In addition, companies can work with their banks to establish a data management framework that outlines the responsibilities and processes for managing and sharing data. This might include agreements on data privacy, security, and compliance, as well as procedures for resolving data discrepancies and disputes.

Overall, managing bank data volume in cash management requires a combination of technology, standardization, and collaboration with banks. By implementing these solutions, companies can improve efficiency, reduce errors, and gain greater visibility and control over their cash positions.

3. Manual and time-consuming processes: 

Manual and time-consuming processes are a challenge in cash management because they can be inefficient, error-prone, and can result in delays in decision-making. 

Manual processes such as paper-based reporting, manual data entry, and spreadsheet-based analysis can be slow, and there is a higher risk of errors and inaccuracies. Consolidating, inputting, and verifying the accuracy of data takes up a lot of time, leaving only a small amount of time for cash flow management strategic endeavors.

This can result in delays in accessing important financial data and making informed decisions, which can negatively impact a company's cash position and financial performance.

Payment processing times and a lack of information transmitted with payments are two major roadblocks to quick reconciliation. When cross-border payments and currency fluctuations are factored in, payment processing and verification become more difficult. 

Solution:

One solution to this challenge is to implement technology to automate manual processes. 

For example, companies can use cash management software to automate data collection and consolidation, cash forecasting, and liquidity management. This can help to improve efficiency, reduce errors, and provide real-time visibility into a company's cash position. 

By automating routine tasks, cash management teams can focus on higher-value activities such as strategic planning and decision-making. 

4. Settlements/transactions in multiple currencies: 

Settlement/transactions in multiple currencies can be a challenge in cash management because it requires companies to manage multiple currency accounts, exchange rates, and different payment systems. This can make it difficult to accurately track cash flows and manage currency risks, which can lead to increased costs and operational inefficiencies. 

Without a cash flow management strategy in place, cross-border receivables can be costly and complicated. Reconciliation, currency-related complexities, and sub-optimal payment terms are the top three challenges associated with cross-border receivables. As a result, currency rate fluctuations can have a negative impact on profit.

Solution:

One solution to this challenge is to use a centralized cash management system that allows companies to manage multiple currency accounts from a single platform. 

This can provide greater visibility into cash positions across different currencies, making it easier to manage cash flows and currency risks. By consolidating currency accounts, companies can also reduce the number of transactions, associated costs, and streamline the payment process.

Another solution is to use technology to automate currency conversions and payment processing. For example, companies can use automated currency conversion tools that provide real-time exchange rates and allow for seamless currency conversions. 

Additionally, companies can use payment platforms that support multiple currencies and payment methods, such as credit cards, wire transfers, and e-wallets.

Companies can also consider implementing a currency risk management program to mitigate the risks associated with settlement/transactions in multiple currencies. This might involve establishing hedging strategies to protect against currency fluctuations or implementing policies and procedures to manage currency risks.

Lastly, companies should ensure that their cash management team has the necessary skills and expertise to manage settlement/transactions in multiple currencies. This might involve providing training or hiring employees with experience in managing currency risks and cross-border transactions.

5. Regulatory changes: 

Regulatory changes can pose a challenge in cash management because they can impact the way companies manage their cash, access financial services, and comply with legal and regulatory requirements. 

Regulatory changes such as new reporting requirements, changes to banking regulations, or sanctions can create uncertainty, increase compliance costs, and impact cash flows. Compliance can be difficult to ensure due to constantly changing laws, regulations, and employment practices. 

In a high-risk law, for example, if the department lacks a cash flow management strategy, counterparty risk, and existing controls, companies must consider whether working in that segment will provide significant value. When a company is not compliant and there are no internal controls in place to prevent it, fraud, lack of care, and lawsuits can occur.

Solution:

One solution to this challenge is to stay informed about regulatory changes and their potential impact on cash management. Companies can establish a regulatory monitoring program that includes tracking regulatory developments, assessing their impact on cash management, and developing contingency plans to manage any potential risks.

Another solution is to work closely with banks and other financial institutions to understand the implications of regulatory changes on cash management. Banks can provide valuable insights into regulatory changes and their impact on cash management services, as well as help companies navigate the changing regulatory landscape.

Also, companies can seek the advice of legal and regulatory experts to help navigate complex regulatory requirements and changes. Legal and regulatory experts can provide guidance on compliance requirements, help companies understand the implications of regulatory changes, and provide support in managing any regulatory-related risks.

How to prevent or overcome the problems with cash flow management strategies?

Understanding the problems of cash management is only the first step. The value is in implementing effective solutions to overcome obstacles. Analyzing existing systems and workflows to determine where problems of cash management exist is the first step to problem-solving.

Here we share with you a few bonus strategies to prevent or overcome cash flow management problems:

1. Examining the historical cash flows: 

It’s critical to review historical cash flows before implementing a structured forecasting workflow. This gives valuable insight into the nature of current cash flow movements, allowing users to spot any flaws or discrepancies.

2. Analyzing and providing feedback on data regularly: 

Following the implementation of the new cash flow structure, the next step is to ensure having an automated workflow in place to provide users with feedback on the accuracy of their data.

Quick read

Learn how enterprise companies manage liquidity with cash flow management strategies.

Benefits of automating cash flow management process

While we shared the most common challenges of cash flow management, the simplest solution to those were automating your process. Here are some benefits of adopting a business cash flow management software:

1. Automated repetitive tasks: 

Bank statement processing and reconciliation automation saves time, eliminates errors, and frees up cash managers to focus on higher-value tasks.

2. Regular global cash visibility: 

Cash utilization is improved by having a single dashboard view of the cash across all banks, regions, companies, and currencies.

3. Informed decision-making: 

Users gain access to critical information and more time to make better investment and funding decisions with global cash visibility.

4. Enhanced profitability:

Informed and timely investment or funding decisions help to minimize interest expense or maximize interest income.

HighRadius’ autonomous Treasury solutions optimize cash flow management with daily cash positioning and reduce reconciliation delays with automated bank reconciliations.

To learn how to overcome cash management problems through cash management software, schedule a demo with our experts.

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