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Five advantages of business cash flow software for enterprise treasury


Businesses use cash flow software to maintain cash flow and estimate future cash flow based on previous transactions and historical financial or operational data. Learn how business cash flow software is helping the enterprise treasury.

Contents

Chapter 01

What is cash flow, and why is it crucial for any business?

Chapter 02

What is a business cash flow software? Why is it important for enterprises?

Chapter 03

What are the causes of cash flow problems?

Chapter 04

What are the benefits of software for the corporate treasury?
Chapter 01

What is cash flow, and why is it crucial for any business?


Cash flows refer to the inflows and outflows of cash from activities seen on an income statement. Cash outflows occur when operational assets are purchased, and cash inflows arise when assets are sold. Effective cash flow management allows a company to expand and grow, increasing revenue and sales.

If a company has a positive cash flow, it has more cash inflows than cash outflows. Negative cash flow indicates that the company is experiencing a cash shortage due to more cash outflows. Maintaining a healthy cash flow is typically linked to the business’s financial success. However, all companies need good cash management abilities and cash flow tools.

How to calculate cash flow?

How to track cash flow using the direct method?

The direct method of cash flow statement adds all cash receipts from operating operations and subtracts all cash outflows from performing activities to calculate net income.

In the operating activities area of the cash flow statement, the direct method includes:

  • Operating cash receipts (such as payments from customers) 
  • Cash payments (such as payments to employees, suppliers, and operations).

How to track cash flow using the indirect method?

The indirect method of cash flow statement begins with net income and then adds or subtracts non-cash revenue and expense items.

Most businesses keep their accounts on an accrual basis, meaning that new revenue must be recorded when it is earned rather than paid. The cash flow statement reassembles these financial events to prove how money moves instead of when income or expenses are recognized.

Cash flow is calculated using the indirect approach by calculating the value of net income (i.e., net profit) after the reporting period. The net income number is then adjusted based on figures from the balance sheet, removing the influence of non-cash movements from the profit and loss statement.

According to Jessie Hagen of US Bank, when companies fail for financial reasons, 82% of the time, poor cash flow is the cause. This happens due to a lack of suitable business cash flow software.

Chapter 02

What is a business cash flow software? Why is it important for enterprises?


Business cash flow software is used to forecast cash movements inside the company over time. Many companies use third-party software to monitor cash flow and integrate it with their existing systems.

A business cash flow software can automate the preparation and reconciliation of an organization’s daily cash position. Users can see their cash positions in real-time by combining bank balances and transactions with predicted cash flows. CFOs and treasurers can obtain better visibility into cash and liquidity while controlling bank accounts, ensuring compliance, and managing in-house banking and financial operations. 

A company needs adequate cash to pay its investors, vendors, and employees and meet its financial responsibilities. Large companies believe that cash flow forecasting is only helpful for financially-strapped businesses. This ignorance often leads to poor cash flow management, cash reserve planning, and missed investment opportunities.

Chapter 03

What are the causes of cash flow problems?


The following are some of the reasons why large companies have cash flow issues:

  • Inability to track cash flows and cash flow issues:

    Due to unpredictability, the pandemic affected enterprises’ ability to predict their cash flows. Low-profit margins challenge invoicing and collecting payments, and over-investing in inventory or capacity can cause cash flow concerns. The various repercussions of poor tracking of cash flows are:

    • Improper use of idle cash
    • Ineffective risk control due to poor decisions
    • Failure to identify cash surpluses
    • Inefficient operations due to panic purchases
    • Extremely high levels of withdrawals or borrowings
  • Seasonal variation

    Seasonal variation is difficult to analyze because every business has peak and low sales periods. If cash flow forecasts don’t include seasonality, the following consequences for firms may arise:

    • Cash shortages during poor sales
    • Stockouts during high seasons
    • Increased borrowing costs and debts
    • High cash buffers
    • Unutilized idle cash
    • Fall in asset prices
    • Poor receivables management and collections
    • Penalties or bankruptcy
  • Frequent late payments

    Buyers can make late payments for services received in some firms. A portion of the money gets delayed to meet the customers’ obligations and benefits.

    Companies often face a massive loss in cash flow because of the delay in payment processing and lack of access to real-time data. Late payments negatively impact a company’s cash flow because most expenses and charges must be paid upfront. Partial payments harm a company’s cash flow.
    Late payments and slow processing for traditional payment methods like cash and cheques worsen the struggle of preserving money.

  • Ineffective cash management

    Many companies cannot continuously monitor and manage excess funds due to a lack of visibility and accurate cash forecasts. Both small and large businesses face cash management issues such as:

    • Processes that are time-consuming, error-prone, and manual
    • Settlements or transactions in multiple currencies
    • Redundancy in the system
    • Decentralization and non-standardization
    • Inaccurate or untimely bank reconciliations
  • Low-profit margins

    One of the most common causes of cash flow issues is low-profit margins. While cash flow and profit are different, a company’s net profit directly impacts cash flow. Most firms losing money continuously eventually go bankrupt.
    This occurs when a company spends too much money on fixed assets.

  • Inadequate cash reserves

    The majority of enterprises lack sufficient cash reserves. As a result, they are unprepared for emergencies and unexpected events. Therefore, there must always be cash for urgent funding to ensure liquidity and avoid negative cash flow. When your organization has a negative cash flow, it must pay its debts and expenses using alternative resources, such as cash reserves. If a business continues to function without bringing in more money than it spends, it will eventually exhaust its cash reserves.

Chapter 04

What are the benefits of software for the corporate treasury?


Here are the five advantages of software for corporate treasury:

  • Availability of accurate and real-time data
    Treasurers can proactively identify risks before they cause losses for the firm by having real-time data visibility and accuracy in projecting cash flows.

    Automated cash flow tool produces high-quality reports in real-time, with deep insights and drill-down capabilities. CFOs can quickly receive reports on cash flows, bank balances, and funding requirements with reduced turnaround times. The reports are also accurate for external stakeholders, the board, and investors to gain their trust.

  • Reduction of manual entry and human errors
    Manual data entry is time-consuming and prone to human errors. Businesses can reallocate resources where they are needed most by automating data gathering and reducing time spent on repetitive tasks.

    Automating manual and time-consuming tasks relieves the treasury department’s administrative burden. As a result, the treasury can concentrate on high-value functions, including cash management, risk management, and strategic decision-making.

  • Risk management and regulatory compliance
    Treasurers should use integrated risk mitigation functionality to ensure company-wide compliance with industry regulations within the systems.

    Automated cash forecasting software uses machine learning to increase forecast accuracy by comparing previous and recent outcomes, finding flaws, and making continual improvements. Treasurers can proactively detect and reduce risks before they become losses for the firm by having real-time data visibility and accuracy in projecting cash flows. Global treasury solutions can assist companies with gaining risk management knowledge, managing the global payment process, and making the decisions that need to flourish globally.

  • Cash management across multiple entities, currencies, and countries
    Enterprise treasurers can extract data and auto-populate market data, bank transactions, and other data needed to support multi-currency cash positions by scheduling and connecting smoothly with banks and other sources.

    The cash management system tracks and reports on the company’s cash flows. It helps monitor cash flows (in different currencies) between several corporate offices, including foreign ones and multiple bank accounts.

  • Cash positioning and automated bank data reconciliation
    To auto-reconcile bank statement items, enterprise treasurers can use user-defined tolerances, matching algorithms, and auto-cash transaction creation. The manual matching option can detect and resolve exceptions quickly. This helps to:

    • Maintain account level status of bank connectivity, balances, and reconciliation status
    • Handle exceptions via manual reconciliation of transactions and outstanding statement items

How HighRadius’ cash flow tool helps enterprises solve their cash flow problems?

Larger firms can afford robust technologies and have enough data to support cash forecasting and cash management. They can use cloud platforms and AI to improve their performance and achieve long-term goals through proper cash visualizations.

Here are some features of HighRadius cash flow tool  that help enterprises:

  • Automated data gathering from ERPs, banks, and other financial systems
  • Connected workspaces with a spreadsheet interface
  • Detailed variance & scenario analysis
  • Constantly updated dashboards and KPIs
  • Automated bank statement processing
  • Automated bank integrations, ensuring continuous global cash visibility
  • Administration of bank accounts and signatories
  • Tracking intercompany transactions and notional pools easily
Chapter 01

What is cash flow, and why is it crucial for any business?


Cash flows refer to the inflows and outflows of cash from activities seen on an income statement. Cash outflows occur when operational assets are purchased, and cash inflows arise when assets are sold. Effective cash flow management allows a company to expand and grow, increasing revenue and sales.

If a company has a positive cash flow, it has more cash inflows than cash outflows. Negative cash flow indicates that the company is experiencing a cash shortage due to more cash outflows. Maintaining a healthy cash flow is typically linked to the business’s financial success. However, all companies need good cash management abilities and cash flow tools.

How to calculate cash flow?

How to track cash flow using the direct method?

The direct method of cash flow statement adds all cash receipts from operating operations and subtracts all cash outflows from performing activities to calculate net income.

In the operating activities area of the cash flow statement, the direct method includes:

  • Operating cash receipts (such as payments from customers) 
  • Cash payments (such as payments to employees, suppliers, and operations).

How to track cash flow using the indirect method?

The indirect method of cash flow statement begins with net income and then adds or subtracts non-cash revenue and expense items.

Most businesses keep their accounts on an accrual basis, meaning that new revenue must be recorded when it is earned rather than paid. The cash flow statement reassembles these financial events to prove how money moves instead of when income or expenses are recognized.

Cash flow is calculated using the indirect approach by calculating the value of net income (i.e., net profit) after the reporting period. The net income number is then adjusted based on figures from the balance sheet, removing the influence of non-cash movements from the profit and loss statement.

According to Jessie Hagen of US Bank, when companies fail for financial reasons, 82% of the time, poor cash flow is the cause. This happens due to a lack of suitable business cash flow software.

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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.