The following are common treasury cash management roadblocks:
Cash flow forecasting is critical to daily cash management, but there are frequent roadblocks in terms of the speed and quality with which treasurers can obtain the necessary data. Companies quite often lack centralized cash forecasting systems or they forecast manually on spreadsheets. Both approaches have an impact on the timing and accuracy of forecasts. This results in delayed reporting.
Furthermore, new industry developments, such as the acceleration of payment processing with features such as instant payments and faster payments, put additional strain on the timing in cash flow forecasting. With real-time payment options becoming more common, it necessitates real-time cash management.
Payment processing times and a lack of information transmitted with payments are two major impediments to quick reconciliation. When cross-border payments and currency fluctuations are factored in, the situation becomes even more complicated. And having manual processes for cash management can make these more challenging for treasury leading to inaccurate reporting and auditing.
Without proper workflows in place, cross-border receivables can be costly and complex. The top cross-border receivables challenges are divided into three categories: reconciliation, currency-related complexities, and sub-optimal payment terms. As a result, currency rate fluctuations can reduce profit.
As businesses expand, system and bank transaction volumes tend to rise. Localization becomes a challenge for most businesses, and they require specialized technology that can cater to their needs. This creates a decentralized nature in terms of data transparency and cash availability.
Cash management processes can be extremely difficult to manage when there are multiple banks, ERPs, and payment systems to operate. Non-standardization leads to poor risk management, disparate tech landscapes, and business complexities. Decentralization also results in delayed reporting and poor decision making.
The following are solutions to the challenges discussed above:
Review historical cash flows before implementing a structured forecasting workflow. This will provide valuable insights into the nature of existing cash flow movements, helping to identify deficiencies or variances. Following the implementation of the new cash flow structure, the next step is to ensure that an automated or scheduled workflow is in place to provide users with feedback on the accuracy of their data.
Netting and cash pooling are two methods that businesses can use to optimize their liquidity planning and management. Cash pooling is the process of consolidating liquidity within one company for short-term treasury cash management. Here businesses deduct funds from cash surplus entities to provide intercompany loans to entities that are cash deficit. Intercompany netting neutralizes pending accounts payables and receivables between two parties and combines them into a single payment. Furthermore, it reduces settlement and other financial risks between two or more parties.
Leverage an automated and centralized cash management system that helps reduce the challenges associated with multiple banking interfaces and systems with multiple banks. Treasurers can benefit from cash management automation by investing in centralized cash management software that connects seamlessly with all banks, ERPs, and independent market data sources to process files in all formats, including BAI2, MT940, ISO20022, XLS, and CSV.
The key benefits of an automated treasury cash management system are as follows:
Because cash management is a fundamental building block for many other treasury-related responsibilities, it must be carried out optimally using a scalable cash management system.
The HighRadius™ Treasury Management Applications consist of AI-powered Cash Forecasting Cloud and Cash Management Cloud designed to support treasury teams from companies of all sizes and industries. Delivered as SaaS, our solutions seamlessly integrate with multiple systems including ERPs, TMS, accounting systems, and banks using sFTP or API. They help treasuries around the world achieve end-to-end automation in their forecasting and cash management processes to deliver accurate and insightful results with lesser manual effort.