Bottomline’s recent 2023 Business Payments Barometer shows a rising trend towards automation. But what does this mean for cash flow management? And how can treasurers make the most of this trend?
To say that finance leaders – treasurers and CFOs – at banks and corporates have their hands full these days is an understatement. Regulations, standards and new initiatives, such as ISO 20022 (for banks globally), the mandates around the UK’s Confirmation of Payee, the upcoming New Payments Architecture (NPA), taking advantage of the new FedNow payment rails, and the never-ending pressure to protect and project liquidity have given the job new responsibilities and possibilities.
In this environment, gaining the necessary efficiencies and insights to improve strategic cash and working capital decisions remains critical. Historically, this has been the remit of treasury. But it’s increasingly becoming the responsibility of a wider scope of finance teams.
Amid a backdrop of regulatory and technological demands, finance leaders need visibility into their cash positions and transactions to improve the utilisation of cash and financial decision-making. This visibility will inform critical decisions around capital allocation and other strategies.
Commenting on treasurers’ value within organisations and their ability to assist in holistic decision-making, Ron Chakravarti, Global Head of Client Advisory, Treasury and Trade Solutions, Citi, said1 : “There is a real opportunity for treasury. The value the function creates became very important when we were in the full flux of Covid-19 in terms of company cash flow, and [the resulting] pivot.”
He added that the pandemic and its aftermath had given treasurers more credibility and more opportunities to influence new investments in technology and personnel. That new status should, in turn, give finance leaders more means to deal with liquidity management pressure and improve other elements of their job. Although this means a long to-do list, with the right technology and resources, it’s possible to accurately present a bank or corporate’s current and future cash position.
To do so, it is necessary to address some challenges in this unsettled economy. Top of that list is automation. Until a company adopts automated cash management technology, it cannot access the new payment rails or the real-time data essential for accurate cash management. Automated visibility is key.
The recent 2023 Business Payments Barometer, which surveyed 1,600 finance professionals across Great Britain and the United States, shows a rising trend towards automation; however, it is far from the levels needed to determine current and future cash positioning. Fragmented multi-ERP systems are often seen as a root cause of this, but in today’s world of cloud-based financial technology, this is a moot point. The report showed that 59% of GB businesses (up from 46% in 2022) and 64% of US businesses (up from 53%) use cash flow management software. Dedicated treasury management software usage has also increased by 10% in both regions, landing at 37% for GB companies and 44% for those in the US.
The research also found challenges in cash forecasting. Again, automated processes will bring the data necessary to accurately forecast cash positions front and centre. However, despite the greater use of cash forecasting tools and treasury management tools, over half of financial decision-makers surveyed in GB (54%) and the US (65%) still feel pessimistic about the accuracy of their forecasts.
Alas, around one-third of respondents across both regions (38% in US and 32% in GB) still manually manage their cash flow forecasts in spreadsheets. While some businesses may use spreadsheets alongside other tools, those that rely on them are challenged to solve their forecasting issues. Tools such as Excel offer limited ability to build models, scenarios, and stress tests to manage cash flow strategically or forecast precisely. They don’t provide the automated and interconnected views needed to make smarter decisions. It’s also hard to argue that scalability and accuracy are key to liquidity management when manual spreadsheets often fall short on those counts.
If companies can either start to automate their cash and payment management systems or build on their existing journey, the most immediate benefit will be better visibility. A traditional TMS, or a new-world cash and payment hub embedded within core accounts receivable and payable processes, can consolidate data from across the organisation (and from multiple banking partners). It can also provide a single, real-time view of the company’s financial position. With access to real-time, accurate, comprehensive data and advanced analytical tools, decision-makers can make more informed and strategic decisions about cash management, investment, and financing activities.
Of course, ‘real-time’ also means real-time payments. Best-in-class solutions will connect to all payment rails and types, including cross-border payments and all the complexities it introduces.
A leading payments hub is an effective way for finance departments to manage those complexities, reliably manage liquidity, and achieve maximum cash visibility. A hub uses APIs to accommodate different payment rails and types through one consolidated global payment platform, overlaying it with value-added services such as cash forecasting, payment fraud prevention, FX, and interest risk management. Automated finance systems are highly scalable, which becomes critical for a company that expands into new markets or introduces new products. It can do so by adjusting the system to handle increased volumes and complexities without a significant increase in costs.
Companies must be attentive to costs and liquidity in today’s business climate. Practical solutions include automating data collection for effective cash management and centralising global payment control, making the process far more manageable and efficient.