Cash flow is the lifeblood of any business, from the clothing boutique in the English countryside to the largest enterprise in uptown New York, or a bank anywhere in the world. At its most basic level, payments and cash management are both art and science. The “art” is seeing the meaning of P&L statements and financial forecasts beyond the numbers. The science can be found in the cash flow automation solutions that have put accurate cash positioning and forecasting within the reach of every company that aspires to it. The list of resources we’ve compiled here ranges from cash flow management basics to deep academic theory; from general cash flow to specific verticals.
Don’t judge this report by its title. On its surface, this appears to be a straight vendor ranking, and yes, there are nine covered here, but the real strength here is in the market analysis Christine Barry and the Aite team have assembled. From encouraging a focus on “digitizing the bank” to meeting greater expectations for data analytics, Aite’s report covers digital banking as well as cash management. Key quote: “Banks recognize the need to provide clients with a seamless experience across all their products within and outside the bank. This requires open platforms, tight integration and a modern and similar look and feel across products. As a result, cash management platform replacement is often part of a larger digital transformation strategy.” Bottomline is honored to be included in this analysis.
This is an academic contribution to the resources around cash flow management. It answers the question: Can cash flow management lead to better financial performance? Like many academic papers, it can tend toward minutiae, but for any finance leader preparing for 2024 cash flow management budgets there’s some gold here among the algorithms. Key quote: “Using the exclusive cash flow measures and metrics data, the study finds that a decline in cash flow measures and metrics bring significant positive changes in firm financial performance. Moreover, the study finds that low leveraged industries are better off in terms of changes in cash flow measures and metrics that bring more positive improvements relative to high-debt industries firms. This paper also demonstrates that, following firms’ leverage, high-leveraged firms may be less advantageous to enhance firm performance in industries where rivals are relatively low-leveraged.”
This report from Deloitte’s primary purpose is to help the commercial banking sector navigate the uncertainty of the macroeconomic future. It also contains compelling research about the future of cash management, finding that 73% of its survey respondents expected that managing liquidity would be among their top three pain points in 2023, followed by receivables management (56%) and an accurate real-time view of cash balances (50%). Key quote: “Large banks with deep pockets are offering AI-based solutions and integration with corporate clients’ workflows through application programming interfaces (APIs) to improve traction. They are also combining their internal data with third-party data to create a unified, cloud-based data platform, while some banks are using industry cloud solutions to deliver new client value, such as predictive analytics, cash flow forecasting, and dynamic portfolio management.”
It would be remiss of us not to share any resources we’d created to help provide advice and guidance to finance and treasury teams across the globe. Based on the research of 1,600 finance professionals in the US and Great Britain, this podcast recording with Bottomline’s Gunita Bindra and Charles Bennett discusses cash management, visibility and forecasting for businesses of all sizes and how optimistic companies are about experimenting with new payment types, changing payment terms, and looking for ways to better protect their business payments in a somewhat volatile landscape.
Quick answer: No. But the pandemic and subsequent global crises have changed cash flow forecasting, and this article from Deutsche Bank does a good job of showing its evolution. One of the ways it has changed is the urgency of scenario planning as a cash flow forecasting tool, even in situations that are hard to predict. Key quote: “Scenario planning is a separate, albeit complementary process to cash flow forecasting. This is already familiar to treasurers planning acquisitions and modelling the impact of changes to tax rates, regulations, input costs, etc. It also plays an essential role in crisis planning. It is impossible to anticipate and plan for every possible scenario. But company boards increasingly rely on treasurers and their colleagues across the business to identify the geopolitical, economic, environmental/climate-related, digital or supply chain scenarios that would have the greatest impact– whether positive or negative – on their business.”
When it comes to cash flow, healthcare is arguably the most complex business vertical. The subtitle of this article from MedCityNews says it all: “How does the faster movement of money impact the way my organization does business today?” When your cash flow is coming from consumers, businesses, insurance companies, and other directions, keeping money moving can affect financial performance as well as customer satisfaction. No surprise here that e-payments are one of the most important mitigating factors. Key quote: “Short-term strategies should focus on incremental steps that lay the right foundation for the evolving world of faster payments. The reality is that ACH typically only covers 80 percent of healthcare transactions, resulting in a reliance on legacy processes—like paper checks—for the remainder of payments. Consequently, health plans must broaden their digital payment portfolio to reflect more comprehensive digitization.”
For a more theoretical view of cash flow, it’s hard to beat this article from Harvard Business Review. It lists five attributes of an effective forecast and includes some use cases for good measure. It even allows for a healthy level of failure. Key quote: “Importantly, great forecasts do not have to prove to be correct to be worth the trouble of constructing them. A higher degree of accuracy enhances the reliability of any guidance a firm might give, helping avoid credibility issues that can arise when investors are surprised. But even if the base case does not materialize, the forecasting process deepens manager’s understanding. By forcing management teams to detail the risks they face and to consider the resources needed to pursue opportunities that might emerge, the forecasting process helps those teams develop a playbook for situations that may arise.”
The title says “treasury”, but this J.P. Morgan report on the complex topic of working capital optimization is a solid addition to resources for any corporate finance leader. It also places working capital optimization in the context of economic uncertainty and organizational liquidity. Like many of JPM’s “how to” reports, it’s accessible and practical. Key quote: “The more visibility treasury has, the better. Ideally, treasury will have full visibility into the organization’s bank accounts, cash balances, cash flows and funding needs by jurisdiction and legal entity. With full visibility, treasury can ensure the organization has enough liquidity on hand to support its operational needs. In reality, many treasury teams do not have this visibility for all financial information in real-time. This impacts their ability to execute their obligations effectively, ensuring efficient funding of accounts and deploying cash for its best advantage.”
This piece, written by Alan Koenigsberg, senior vice president and global head of enterprise, growth corporates, verticals and working capital solutions at Visa Commercial Solutions, explores how financial institutions can leverage automation and connected tools to better serve the needs of their corporate customers. Koenigsberg makes the case for a more attentive approach to the middle market, based in part on working capital optimization and cash flow management. Key quote: “Liquidity has emerged as a top priority for many middle market companies, underscoring the importance of efficient cash flow and working capital management. These growth companies are particularly focused on embracing digital solutions for global payments that offer streamlined and secure payment methods. Simultaneously, identifying and mitigating risks associated with fraud remains a paramount concern, which requires rigorous measures to safeguard the integrity of every transaction and protect the corresponding data.”
Like most McKinsey reports, this one is heavy on practical use cases. It gives six strategies for improving cash flow management, including analyzing your accounts payable and accounts receivable departments with a nod toward automating both functions. Key quote: “By closing gaps caused by slow invoicing, weak collections policies, early payments to vendors, inefficient payment processes, and out-of-market terms, a company can typically reduce its cash-conversion cycle, freeing up cash to make investments, reduce debt, pay dividends, and fund mergers and acquisitions. For example, a global agricultural products company conducted a transaction-level analysis as part of a broad effort to achieve best-in-class improvements in working capital. The results helped it design new product- and region-specific initiatives to transform its order-to-cash process, as well as various category-specific measures and process improvements to extend the procure-to-pay cycle.”
As part of EY’s CFO Barometer series, this Q&A covers a lot of ground, from how CFOs should monitor cash positioning to inventory management to research on both topics. Forecasting also gets a look here. Key quote: “Many CFOs have started to follow up the cash position more frequently. A good forecast is essential to know where a cash shortage might arise. A CFO can only negotiate with a bank to solve a shortage when he or she has gained the necessary insights in advance. Especially with companies where the cash conversion cycle is relatively long.”