Keeping an Eye on Liquidity

How increasing visibility helps you manage your company more effectively

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Beate Haumesser author pictureAuthor: Beate Haumesser

Liquidity is essential for the success of any business. If sufficient liquidity is available at the right time, a company can make investments and achieve its goals. If there is insufficient liquidity, processes stall, causing havoc. Dealing with the consequences under the resultant time pressure is almost impossible and wrong decisions are frequently taken.

This is precisely the sort of situation which highlights the importance of having good visibility of changes in liquidity at all times.

The requirements

Managing a company’s financial resources relies on having a regular overview of balances on all available bank accounts and liquidity sources, such as loans, lines of credit and investments. This includes receiving a balance report on a daily basis showing the change in these positions over a short time period.

But what if decisions need to be made today for a period in the future?

In this case, liquidity planning is essential for companies. It provides a structured view of key incoming and outgoing cash flows at the company based on the operating assumptions for a fiscal year. Companies fix this data in time, providing a snapshot forecast for comparison over the year. If significant changes become apparent over time, the plan is modified. Where such changes are made, this is referred to as rolling planning, which enables new insights and their impact on liquidity to be accounted for and developments over the year to be anticipated. Annual and rolling plans are compared and differences analyzed with the aim of reliably controlling liquidity for the company.

Why is it so important to keep an eye on this information at all times rather than when the company’s financial situation starts to deteriorate?

Basis for sound decisions by management

One of the duties of a managing director is to keep a constant eye not only on the financial growth of the company but also on its solvency. A daily financial status overview combined with a structured liquidity plan provides an excellent foundation in this respect, forming a reliable basis for every strategic decision.

Evidence for lenders and shareholders

Liquidity planning is a necessary prerequisite for any financing. Financing providers and investors do not just want to know what kind of return they can expect on their investment; they also want to be reassured that they will be repaid over time. Evidence of this must be presented before a decision is made and can be provided by liquidity planning. A plan that can be reviewed and reinforced on a rolling basis has a lasting positive impact on the reputation of a company in the eyes of all stakeholders.

The key considerations

Companies must set out standards to ensure the requirements mentioned above are met: all participating companies should prepare plans according to set procedures, regardless of whether they are involved in production or sales. All units involved in planning need a common exchange rate basis if they operate in different countries and all should follow the same process for planning.

If you have ever dealt with these requirements yourself, you will know what the challenges are:

Establishing structures

Entities use their own exchange rate scenarios and convert all planning values to their local currency. Plans are only partially completed or certain information provided is contradictory. Units and formats are changed and used differently. There is no coordination between operationally linked units, and so on. If instructions are too complex or requirements too onerous, entities are often overwhelmed and use the information incorrectly.

Pulling together company-wide data

If instructions are not fully adhered to and information is delivered in various ways, pulling together a plan at group level is a tedious exercise. Data must be transferred manually, assumptions scrutinized, currencies summed and formats changed. A high degree of commitment is required to adhere to specified time frames and avoid data being superseded in the meantime by more recent data. Manual entries are prone to errors and delays are often anticipated and built into the schedule.

Day-to-day company processes become uncontrolled and inefficient, and all parties lose momentum. The result is a liquidity plan based on data which is obsolete and ultimately unreliable.

The solution

In our digital, globalized world, using software is one obvious answer to increasing efficiency and improving the underlying data. Ideally, companies use a group-wide platform to which all relevant employees have access and which thus provides reliable data in real time.

But not all companies want to go down this path and implement their own software.

  • They shy away from the time and effort involved in investing in an IT project.
  • Insufficient staff resources are available.
  • They simply want to concentrate on the results, without embarking on a lengthy project and hiring and training new staff.

Small and medium-sized enterprises in particular would prefer to go one step further and outsource all repetitive, time-consuming tasks to a renowned service provider.

Since 2015, BELLIN’s Treasury as a Service (TaaS) offering has given companies the option of a professional solution enabling them to outsource or receive support for clearly defined daily treasury tasks. This includes tasks such as determining the company’s worldwide financial status, processing payments, cash pooling and netting (offsetting internal payables and receivables) – and of course liquidity planning.

Liquidity planning with TaaS

BELLIN provides a standardized planning platform on which all companies of a corporate group enter their planning data in line with standard process instructions. The entire planning process is documented by BELLIN and thus meets essential compliance requirements in place at companies. Planning templates are standardized and based on the expertise built up over decades by BELLIN consultants worldwide. Neutral categories are used which are relevant to every company. Planning is carried out based on an annual plan or on a monthly rolling basis and is broken down by currency. We set deadlines for the entire process using our planning calendar. Once the period for entering planning data ends and internal coordination has taken place to ensure consistency, all parties can immediately begin various analyses: the various plans can be compared to the actual situation or with each other and examined for differences.

Headquarters can begin consolidated analyses and obtain valuable information from the reports which is required for decisions on financing or hedging against exchange rate fluctuations to be made by the relevant entity or at group level. Rolling planning promptly demonstrates changes over time and enables immediate intervention with targeted measures. This reduces the company’s exposure to risk.

BELLIN takes care of all essential requirements, providing web-based access to an application and a certified cloud service as well as data center processes which guarantee the necessary security. We take care of the manual chores; you deal with data entry and analysis. You have a solid basis for carrying out further strategic work.

Gone are the days of manual data gathering via various communication channels and the tedious analysis of data. Gone too the uncertainty regarding the source of information and the risk of obsolete data.

Discover our services for yourself.

Treasury as a Service (TaaS) – at your service

Think of Treasury as a Service (TaaS) as your “treasury butler”: get the results and the control without having to put in the legwork. With BELLIN Treasury as a Service (TaaS), you can outsource selected, repetitive and routine tasks to our team of treasury experts. Our packages cover:

  • Financial status
  • Liquidity planning
  • Payments
  • Cash pooling
  • Netting

Make use of our service and free up time to concentrate on the things that really bring value to your business: strategic planning and analysis.

Watch our video to see what TaaS can do for you.

Interested in finding out more about whether TaaS is the right solution for you? Give us a shout or check out tm5, our intuitive treasury management

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