The following was written by Bottomline's Gunita Bindra and Charles Bennett
Cash flow management is on the upswing as companies prioritize automated processes over the next 12 months. That captures two key findings from the recently released Bottomline 2023 Business Payments Barometer, which surveyed 1,600 finance leaders across the United States and Great Britain.
By the numbers, in the US, the usage of cash flow management software jumped from 53 to 64% of respondents compared to last year's Barometer results. Treasury management systems rose from 33 to 44% usage, and the use of AI spiked from 29 to 38%. In GB, cash flow automation is now in place at 59% of all companies, up from 46% last year. Automated treasury management went from 27 to 37%, with a similar AI bounce from 22 to 34%. On the flip side, manual Excel usage still holds steady in in GB at 32% and the US at 38%.
These developments have implications for companies that have migrated to automated payment platforms or still using manual processes. Those who have recently upgraded their systems, or have completed their journey toward digitization, have an advantage in managing the economic complexity of today’s payments landscape as well as an advantage over competitors who may still be stuck in neutral. This group now needs to focus on the features and functionality of automated payments technology that go beyond creating invoices, managing payments, and producing financial reports. An effective and accurate cashflow management system – and AP and AR automation platforms are included in this discussion – should offer real-time updates on cash positioning as well as outstanding payments.
That leads to accurate forecasting. In short: Don't just show me the data; forecast what it looks like in the future. Because despite greater use of cash forecasting tools, financial decision-makers continue to feel pessimistic about the accuracy of their forecasts, with half of GB businesses (54%) and (65%) of US businesses saying they are seldom accurate. In the US, small businesses (50%) are less likely than average to share this sentiment. No surprise then that a recent Visa Connect research project showed 49% of all SMBs investing in cost-saving technology.
Automation and centralized payment hubs to store analyze data can go a long way toward effective and accurate forecasting. For those still using manual processes, these findings should be a call to accelerate the digital journey. When you look closer at the data and factor in some of the conversations we consistently have with companies on this journey, we tell them they have two options. First – and this is highly recommended – they can decide to take the journey toward a full suite of cash management and payments platforms. It’s a worthwhile investment in terms of capital expenditure and change management. But understandably, companies may not be ready to drop the spreadsheet processes they’ve used for years, which could explain why Excel is still in use at so many companies. We're also seeing growth in companies that want a more incremental approach to automation. They want to move from manual spreadsheets towards automated cash management solutions at a pace that will allow them to provide accurate cash visibility and forecasting. It’s a lighter touch and a viable option for companies wanting to ditch manual processes in favour of automation.
There is also the school of thought that says corporates should take the leap, switch to a fully-automated system and find expertise in a partner that specializes in AP automation as well as cash flow management.
Other key findings from the cashflow management section of the report include:
Supplier Relationships: In a new question this year, we found that a majority, particularly in the US, say they care about “how suppliers prefer to get paid and whether it is efficient for them.” We see this as a significant finding. Post-pandemic, we see more businesses caring for their supplier relationships, especially if they are strategic partners. As more payment terms are being renegotiated, it becomes even more critical. Flexible payment terms can help businesses manage and maximize their cashflow. As per the report’s findings, this practice is widely accepted, with 40% willing to negotiate payment terms to help address the negative impact of inflation. This rises to 73% of companies in GB and 78% in the US when looking to accelerate inbound cashflow.
Managing Priorities: Cashflow management, including improving cashflow forecasting and liquidity management, is a key priority over the next 12 months for the finance departments of GB (40%) and US companies (41%). We believe 1) the C-suite will continue to demand that their cashflow management systems and business payments networks are fraud-free. 2) That cashflow management approaches will advance beyond “pay and get paid”, and 3) be flexible enough to meet the changes and expectations of customers and suppliers seeking to achieve higher levels of automation efficiency and growth at the same time.
Payment Trends: In a new question this year, respondents were asked if they had noticed a change in payment trends over the past 12 months. Most noted an increase in late payers as well as failed payers. On the plus side, half (52%) of GB businesses and three-fifths of US businesses (60%) have seen an increase in recurring payments, indicating that companies are implementing automated ways to collect regular funds. For companies with increased late or failed payers, using solid communications, automated payments technology and associated data analytics can help customers track their spending, set budgets, save money, and even invest. Some technology solutions might include: 1) Tracking and identifying problematic customer groups or industry sectors 2) Engaging them and giving them a different route to make their payments. In the UK, for example, Open Banking technology features Variable Recurring Payments in which the payer gives a third-party permission to initiate a payment to the biller on their behalf. This opens the lines of communication and provides a technology to assist the customer rather than alienate them with excessive debt collection tactics.
The Bottom Line: On the positive side, cashflow automation is trending up along with the spirit and intent to make payments work for suppliers as well as payers. With new payment rails continuing to find traction and new payment initiatives in GB coming down the line, this trend toward automation is happening just in time.