Healthy growth requires timely responses to changing conditions and new opportunities. Healthy managing cash flow is essential for a business to grow and succeed. It enables a company to take risks and seize new opportunities and unexpected difficulties.
A healthy cash flow isn’t only about earning more than you spend or having a large sum of money. It’s about ensuring that the company can respond quickly and effectively to new opportunities, critical for short and long-term success.
This is possible through effective cash flow management.
Cash management is the technique of collecting and processing cash flows. Cash management manages business activities, capital holdings, cash flows, and risk mitigation.
Cash management is a critical component in establishing and maintaining a company’s financial stability. Because cash is the key asset utilized to pay liabilities, companies must manage it appropriately to maximize revenues.
According to a survey sponsored by SAP Universal ID, 80% of finance executives believe that modern companies’ growing complexity and volatility have increased the importance of cash management, reporting, and forecasting.
However, many companies are unable to manage cash properly.
These are the main challenges in cash management:
As businesses grow and new units open worldwide, system and bank volumes tend to rise. For many of these businesses, localization is a problem, and they demand technology that can meet those needs better than others. This results in a decentralized structure of data transparency and currency availability.
Individual task execution might lead to data input errors and limited bandwidth. The treasury department spends most of its time integrating, entering, and confirming data. This results in only a little time left over for crucial tasks.
Cross-border payments and currency volatility further complicate cash management. Without proper protocols in place, cross-border transactions can be expensive and complex. Reconciliation, currency-related complications, and sub-optimal payment periods are the top three cross-border receivables challenges. As a result, currency rate swings can reduce company profits.
Complying can be difficult due to constantly changing laws, regulations, and employment practices. For example, a department in a high-risk country lacks monitoring of cash, counterparty risk, and existing controls. In this case, fraud, carelessness, and lawsuits can occur when the business is not compliant and has no internal controls.
When there are many banks, ERPs, and payment systems to monitor, cash management operations can be challenging. Non-standardization leads to ineffective risk management, a different technology landscape, and increased business complexity. Decentralization also leads to delayed reporting and ineffective decision-making.
Companies often lack centralized cash forecasting tools and primarily create forecasts using spreadsheets. This has an impact on forecasting turnaround time and accuracy. In addition, new industry innovations, such as the acceleration of payment processing with features like rapid and faster payments, put extra strain on cash flow forecasting. Also, inaccurate forecasts lead to poor cash management.
A skilled treasurer can help a business keep an eye on the general health of the company’s cash flow and be better prepared to deal with problems when they occur.
Most importantly, this means making the best use of present assets and liabilities by systematically planning, monitoring, and controlling collections, expenditures, and account balances. Moreover, treasurers should gather and maintain the information needed to make the best use of available cash.
The following are the best cash flow management practices:
Cashflow management software is becoming increasingly accessible to organizations of all sizes. Cashflow management software offers the following benefits to treasury:
Advantages of utilizing cashflow management software:
Executives can simply track processes and policies using cash management software. Furthermore, all payment request data is maintained in a centralized, cloud-based system, making it easy for treasury staff to preserve accurate records and obtain them quickly.
A $10 million firm faced the following cash management challenges:
They were able to obtain the following benefits after implementing the HighRadius cash management solution:
Treasury leaders are looking for these advantages to help them overcome their cash management challenges. Schedule a demo to manage cash flow properly to reach your goals.
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.