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An essential guide to overcoming the common roadblocks of cash management

What you’ll learn

  • Get an overview of the common challenges that treasurers go through with cash management.
  • Learn the key cash flow management strategies to overcome those challenges.
  • Understand how treasury can benefit from effective and accurate cash flow management.

Executing optimal daily cash management is a discipline that relies heavily on several business units and departments throughout an organization. Depending on the structure and technology, this can be either stressful or linear. CFO Research conducted a survey of 371 CFOs, treasurers, and other senior finance and treasury executives for its study, "Next Generation Needs for Cash Management." The responses revealed, to succeed in the future, 83 percent of survey respondents said their company would need better forecasting and understanding of its cash positions. A further 76 percent of respondents predicted that accurate cash flow management would become even more difficult over the next five years.

Common roadblocks of cash management

The following are common treasury cash management roadblocks:

Lack of forecasting speed and accuracy

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.

Manual, time-consuming, and error-prone processes

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. 

Settlements or transactions in more than one currency

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.

System redundancy and transaction volume

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.

Non-standardization and decentralization

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.

Solutions to cash management challenges

The following are solutions to the challenges discussed above:

A comprehensive cash flow review that includes consistent data analysis and feedback

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.

Intercompany netting and cash pooling

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.

Automated and centralized treasury cash management system

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:

  • Continuous global cash visibility
  • Automate repetitive tasks
  • Proactive decision making

Benefits of an accurate cash flow management system

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.

Advantages of using a treasury cash management system

  • Analysis based on operating cash flow can be more insightful and easier to understand for people across the organization.
  • Advanced reporting capabilities help in providing real-time and granular insights to make accurate timely decisions.
  • Greater control and access to cash flows, as well as additional security over sensitive data.
Overcome the numerous challenges of cash management, by scheduling a demo with our experts and learn why it is critical to use effective technology to automate the multiple, often manual, workflows in finance and treasury.

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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.