How Smart Cash Management Could Save Your Balance Sheet

by Ebru Pakcan, Global Head of Payments and Receivables, Treasury and Trade Solutions, Citi

More often than not, finding ways to improve a company’s balance sheet requires looking at cash management operations through a different set of lenses. Just as an eye care professional can offer remedies that improve eyesight, cash management experts assist with cash flow and cash management processes that can lead to stronger financial health. 

Top cash management providers deploy their own methodology for analysing treasury and financial operations, and then deliver intelligence on root causes of various problems and prescriptions for fixing them. Toward this end, they conduct their examinations through a number of lenses. One of their most critical focal points is an organisation’s financial position, where a thorough assessment of financial pressures that drive current-state decisions can help shape strategies and priorities going forward. Perspectives on these pressures are found in the company’s balance sheet and income statement, which represent its wealth and its health respectively. These statements provide insights into financial drivers that cascade through product development, distribution, sales cycles and market expansion. They also house information that is critical to unlocking solutions for improving working capital management, in addition to risks and controls.

Since financial statement characteristics and drivers can vary from industry to industry, a company’s cash management partner must ask the right questions to understand business and financial priorities. If, for example, it is a new entrant to an industry or is deploying a new product line under a new subsidiary, it may be focusing on shortening receivables and avoiding sales reversals. A stronger, longer-term player in the same industry may be concentrating on its liquidity position to support acquisition activities. An enterprise with a wide geographic sales footprint may want to have an optimisation play across multiple balance sheets, and in turn, may set up a re-invoicing or shared service centre arrangement benefiting from tax efficiencies that makes its receivables ‘cross-border’. A solid global company may be under competitive pressure to drastically innovate and overhaul its product line, distribution, and sales model, a situation that could impact its legal and account structures, payment and collection channels, and its payment methods. In the end, it comes down to asking the right questions.

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