Defining 6 Core Cash Management Challenges and Solutions

How to use workflow analysis and implement emerging technology
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Ron Jaradat author pictureAuthor: Ron Jaradat

Introduction

Any entity that experiences growth also experiences operational hurdles. And with companies who have far-reaching subsidiaries, daily cash management challenges become apparent. 

Think of it this way:

As children, our diets can consist of sugary drinks, french fries, and chocolate milk, yet we were still able to operate at maximum speed.

As we grow older, the impact those nutrient-deficient foods have on our body becomes far less forgiving.

More complexity, external factors, stresses, and just overall age has made it more important to keep a watchful eye on our “operation” (diet).

For corporate treasurers, a growing company works in the same way. A poor structure or primitive financial software no longer give you the proper nutrients you need to operate at maximum efficiency.

Executing optimal daily cash management is a discipline that is heavily reliant on several business units and departments across your company. This can be either stressful or linear depending on your structure and technology.

Because of this, treasurers are tasked with ensuring there are strict workflows in place to minimize the decentralized nature of incoming data, transparency, and banking information.

New solutions are constantly emerging that are intended to help simplify tedious or complex cash management processes. While such solutions are simplifying the execution of those processes, treasurers are being expected to expand their responsibilities. A study conducted by CFO Research, “Next Generation Needs for Cash Management,” surveyed 371 CFOs, treasurers, and other senior finance and treasury executives. The responses show a few notable tendencies and highlight that  there is a general pressure to deliver on the expanding amount of responsibilities and complexity treasurers are facing.

83% of the survey respondents said their company would need better forecasting and understanding of its cash positions to succeed in the future. With such a large percentage of respondents seeking improvements to their ability to execute effective forecasting and cash management, the availability of process and technological solutions, such as TMS, are needed. In addition, emerging technology promises additional support. An additional 76% of respondents stated they expect cash management to become even more difficult over the next five years.

Cash management challenges

Here is a summary of the main challenges:

  1. lack of forecasting speed and quality
  2. redundant system and bank volume
  3. tedious manual and error-prone processes
  4. settlements or transactions in multiple currencies
  5. regulatory changes
  6. standardization, centralization and automation

Download our cash management white paper titled: “Embracing Technology: Solving Key Cash Management Challenges,” which dives into some of the key challenges and how to overcome them.

Lack of forecasting speed and quality

The practice of cash flow forecasting is contingent on the input of various units across your organization. Some units might be cash managers, financial controllers across different subsidiaries, and many more. The reporting and forecasting accuracy is therefore dependent on that incoming data.

Redundant system and bank volume

As companies scale and new units spring up globally, system and bank volume tends to continue to increase. Localization can be an issue for a lot of these companies, and they require specific technology that can tend to their needs better than others. This creates a decentralized nature regarding the transparency of data and cash availability.

Tedious manual and error-prone processes

The physical execution of the individual tasks can lead to entry errors and a lot of time wasted. Consolidating, inputting and checking the validity of data often takes up a large majority of time, leaving scraps of time left to allocate toward strategic endeavors.

Two big hamstrings to quick reconciliation are payment processing times and lack of information transmitted with payments. This gets further complicated when cross-border payments and currency fluctuations are introduced.

Settlements or transactions in multiple currencies

As mentioned, cross-border payments and currency fluctuations further complicate cash management.

Cross-border receivables can be costly and complex without proper workflows in place. The top challenges associated with cross-border receivables fall into three broad areas: reconciliation, currency-related complexities and sub-optimal payment terms. Consequently, currency rate fluctuations can negatively affect your profit. 

Regulatory changes

Constantly changing laws, regulations and employment practices can make compliance a difficult to ensure. For example, if your department lacks oversight of cash, counter party risk and existing controls in a high risk jurisdiction, it might be a good idea to think about whether working in that segment will yield any significant value.

Fraud, negligence, and lawsuits can spring about when a business is not compliant and there are no internal controls to prevent such things.

Standardization, centralization and automation

It can be extremely difficult to standardize, centralize and automate cash management processes when there are multiple banks, ERPs, payment systems, etc to operate. Without a centralized system to synchronize various systems, standardizing and automating can be difficult.

Solutions to cash management challenges

Process restructuring and analysis

Understanding the cash management challenges is only the first piece of the puzzle. Implementing effective solutions to negating challenges is where the value lies.

The first step in optimizing any process is analyzing existing systems and workflows to determine where weaknesses lie. There are two recommendations here:

Holistic cash flow review – Before implementing a structured forecasting workflow, it is important to review historic cash flows. This will provide valuable insights into the nature of existing cash flow movements to help understand where flaws or discrepancies may exist.

Consistent data analysis and feedback – After implementing your new cash flow structure, the next step is ensuring you have an automated or scheduled workflow to give users feedback on their data accuracy.

Additionally, cash pooling and intercompany netting both play a role in establishing an in-house bank, which is an overarching means of centralizing payments in a group, including Payments and Receivables on Behalf of (POBO/ROBO) or cash pooling, simplified account structures and efficient funding. 

You can find a more in-depth breakdown of cash pooling, netting, and an in-house bank in cash management in this blog post here.

Treasury Management System

Another strategy is in introducing a centralized treasury management system.

A treasury management system excels in removing many pain points regarding multiple banking interfaces and systems with multiple banks by providing one centralized system to execute banking needs. This commonly leads to a reduction in banking interfaces and harmonized processes that can be centrally monitored

With process automation, a TMS can enable treasurers to improve cash forecasting and advanced cash management. By reducing the amount of errors and time that manual processes demand, treasurers can free up more time for strategy. 

Companies can create a process with a disciplined timeline for users to access and input information directly in the treasury system, each user group owns and is accountable for the accuracy of the forecast information. This solves the problem of decentralized units not being on the same page.

Here at BELLIN, we offer a web-based and dynamically integrated treasury management system that excels in ensuring global visibility, maximized security and uncapped workhours saved. Additionally, our Load Balanced Treasury standard means there are no per-user licenses, ensuring subsidiaries can share data seamlessly, profit from real-time transparency, and maximize global security.

You gain:
An intuitive and flexible system to match your organization
A fully integrated solution that meets all corporate treasury requirements
Strategic insight based on real-time, reliable data
Group-wide efficiency, visibility, and transparency
Connect all global subsidiaries seamlessly with complete global collaboration
The ability to implement company-wide standards and workflows

Future Technologies

The future of cash management could see more improvement with emerging technology like APIs, artificial intelligence, and advanced analytics.

APIs, or “Application programming interfaces,” provide a software connection for passing data from one program or service to another; they are a means by which information can move into and out of systems quickly and easily.

Predictive analytics techniques like statistical analysis, rich data modelling, real-time processing and scoring can be used to detect trends for more efficient forecasting.

Conclusion

Cash management is a fundamental building block to many other treasury-related responsibilities so ensuring it is executed optimally is imperative. By analyzing structures and implementing the right technology, cash management efficiency and the fast availability of data is at your fingertips.

We created a white paper that dives deeper into challenges and opportunities found in daily cash management. You can find and download it here.

Would you like to learn more about BELLIN’s cash management solution? Just reach out to us for a tm5 demo, or visit our main tm5 page.

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