The future of liquidity management looks dramatically different, and that presents new challenges for financial leadership. The role of financial leaders will evolve over the next several years, with leaders looking to bridge the gap between legacy systems and modern processes.
Various market forces are impacting this evolution, and financial leaders need to stay ahead of the curve. According to Mary Brause, senior vice president at U.S. Bank, a thread of economic uncertainty lies hidden underneath these developments.
“We’ve been riding an economic rollercoaster for the last year and a half,” Brause said. “We’ve experienced inverted yield curves, rising and falling rates, and now a complete upheaval in cash strategies.”
Brause also noted that microeconomic factors, such as digital payment systems and new payment rails, add to the complexities in liquidity management strategy.
“As e-payment systems emerge and evolve, legacy platforms aren’t necessarily able to keep up with these changes,” Brause said. “This requires companies to bolt together old technology and new solutions, which can introduce operational risk, potential payment processing failures, and increased work to clean up payment exceptions.”
The modern economic, environmental and technological landscapes demand the need for efficiency and optimization. These strategies can help improve visibility for your business.
Given the uncertainty facing modern financial leaders, it’s important to adapt your liquidity management strategy to changing circumstances. John Melvin, working capital consultant for U.S. Bank, notes that new technologies can encourage tactical and strategic evolution.
“Not only does technology have a major role in how payments are made, but in how companies process and account for the payments,” Melvin said. “A common objective for many companies is looking for ways to optimize their payment processes, and the benefits are significant.”
“Companies can reduce costs when they integrate payment solutions with existing treasury workstations and ERP infrastructures,” Melvin said. “A central payments solution will include up-to-date security protocols and regulatory compliance modules and can take on all payment types.”
Brause and Melvin highlight four key benefits that can help financial leaders best encourage greater visibility for their liquidity management strategy.
Improve control over cash forecasting
Visibility is a key ingredient for improving controls. We often see organizations making this a priority by “Deploying cloud-based ERP or treasury workstation solutions can connect cash flow planning tools with your company’s CRM and sales management systems,” Brause said.
“Dashboards are a powerful visual tool that provide leaders across the organization with meaningful cash flow metrics that reflect the strategic drivers of diligent cash flow management. Additionally, leadership needs to reinforce the company’s commitment to cash flow management.”
Review your trading partner relationships
“Review and revise your payment and term strategies with vendors,” Melvin noted. “Key internal questions organizations should be asking are: Are your payment terms well-defined? Do they make a direct connection to impacts on liquidity management?” By taking a dynamic look at these questions companies can better understand risks that are created through terms management.”
Unlock trapped cash
“Regardless of industry segment, companies face trapped cash scenarios, which, in many cases are a direct result of manual internal operational flow,” Melvin noted. “Manual processing can create limited visibility into transactions as well as the recognition of cash.”
“With greater visibility, you can better identify where trapped cash exists. For example, company A sends company B a payment without remittance information. Cash can’t be applied without this information, so it sits waiting for outstanding data, such as trade/credit availability, investment decisions, or liquidity availability. This forces company B to borrow unnecessarily.”
Reduce liquidity risk
“Without visibility into your cash flow, you’re creating liquidity risk,” Brause said. “In addition to cash forecasting and managing seasonal cash flows, it may be worth considering a more robust technology solution that can automate payments tracking against contract terms, send payment reminders and monitor cross currency transactions.”
Melvin and Brause encourage financial leaders to evaluate their current pain points and determine how their operations would look with those barriers removed.
“For example, maybe matching invoices to incoming payments is a tedious process when there are errors or exceptions,” Brause said. “How quickly would you like to resolve exceptions? What tools and resources are available now to make this process easier?”
“Change is constant in liquidity management, and optimizing how you manage data, accept and receive payments and drive business processes will reflect directly on your bottom line,” Melvin added.”
Enhancing your liquidity management requires insight into the latest payments trends and innovations. Contact U.S. Bank for more information.