Common questions about cash flow management focus on automation

Treasury And Cash Management


Colin Swain

Oct 18, 2023

The world of business payments can be somewhat unpredictable these days, but your cash flow doesn’t need to be. But businesses do need to be agile, and automating cash flow management ensures that companies can predict and adapt quickly to economic, regulatory and customer challenges. Automation in cash flow management is not just a trend but a necessary evolution to ensure business resilience, competitiveness, and sustainability in a complex financial landscape. To answer some of the questions we hear most frequently about automated cash flow management, we’ve assembled this article that covers everything from the urgency surrounding this discipline to the dynamics driving it and even the reasons a company might hang on to manual-based spreadsheets.

Why is there such an intense focus on automating cash flow management lately? 

Two reasons: First, because of the pandemic and second, the resulting economic uncertainty that has either worked its way through the financial system or is still working its way through it depending on the reports you subscribe to. The old adage goes that no CEO ever likes a surprise, and no company ever likes uncertainty. An inaccurate cash flow forecast is a good way to guarantee both. During the pandemic, cash flow management became critical because so many businesses either saw dramatic reductions in revenue (think hospitality) or unexpected spikes (think pharmaceuticals). And, while the global economy has largely avoided an official recession, manual cash positioning and forecasting has become a difficult task. According to a report from Atradius, payment terms granted to companies have become shorter by a week since the beginning of the year, now tracking at a 35-day average from the initial invoice. And 55% of all payments between businesses are overdue. Those are the types of dynamics that make manual cash flow management exponentially more difficult than they were before the pandemic’s onset. 

Accuracy of current cash positions and better forecasting are table stakes for automated cash flow management. What are some of the other advantages?

Automation streamlines the cash flow management process and eliminates the need for tedious, time-consuming manual tasks, allowing finance leaders right up to the CFO to focus on more strategic issues. Automating cash flow should also enable real-time data analysis and reporting, which can help businesses make informed decisions far more swiftly, adapting to market changes instantaneously. For businesses operating in the global landscape, managing cash flow across different currencies, tax regimes, and regulatory environments can be challenging. Automation ensures seamless cash flow management internationally, making globalization more manageable.

Are there other dynamics at play that will continue this urgency for companies to automate cash flow management?

Yes. The first is multi-bank relationships. As Bottomline’s digital banking GM, Kevin Pettet, said recently, the growth in multi-bank relationships requires corporates to have tools manage cash visibility across their accounts. Doing so enables corporates to have a holistic view of cash positions rather than having to reconcile those positions themselves. Combined with effective forecasting tools companies can improve overall financial planning. The second is a general level of dissatisfaction among businesses. Only 23% of corporate finance leaders surveyed by AiteNovarica in late 2022 said their bank fully met their cash/treasury management capability needs. Closing that gap, according to Aite, will take “a modern UI and tight integration that enables seamless experiences within and outside the bank portal.”

If a business is still manually managing its cash flow, does migrating to automated cash management require a “rip and replace” strategy? 

Not necessarily. The choice between a gradual transition and a "rip and replace" strategy depends on various factors, including the organization’s size, the complexity of current processes, available resources, and the urgency to automate. A hybrid approach can also be considered, where certain non-critical functions can be ripped and replaced while critical ones are transitioned gradually. In fact, a phased, gradual approach is often more advisable for many businesses to mitigate risks, manage change, and ensure a smooth transition. Transformation can be managed and spread out over multiple phases; giving employees time to adapt to new technologies, reducing resistance and enhancing productivity. A gradual approach also allows for the iterative improvement of the system, ensuring it’s tailored to meet the specific needs of the business. 

What is a payments hub in the context of cash flow management, and how does it work? 

A payments hub can be best described as an automated system for all financial transactions. It acts as a single point for all incoming and outgoing payments, including electronic transfers, cheques, credit cards, and other methods in your payment mix. It simplifies, automates and controls those payments, eliminating the need for manual redundant data entry and reconciliations. When the payments hub receives complete and consistent data, it can automatically match payments with invoices, reconcile accounts, and perform necessary validations. The result is a more accurate, efficient and faster business payment process.

How does data quality contribute to cash flow management?

The first key is identifying the internal and external data necessary to integrate into your view of the cash lifecycle. For example, external market data can include interest rates, foreign exchange rates, and stock prices. Data can also come from ERP systems and their connection to accounts payable and receivable platforms, cash positions, cash flow statements, debt levels, and compliance and regulatory requirements. Finally, data needs to be integrated as well, and this can include basic sales reporting and forecasting from business units, subsidiaries, departments, and cost centres.

What kind of decisions does the automated cash management process facilitate?

Should I accelerate payments to some of my suppliers? Should I delay others? Should I give early pay discounts to some of my customers? Should I pursue a line of credit to meet new financial obligations or cover new expansion? Whether it's evaluating potential mergers and acquisitions, entering new markets, or diversifying product offerings, the right data can give you a solid understanding of your cash position and then inform even the most impactful financial decisions. 

Can automated cash flow management mitigate payment fraud? 

Fraud detection and defence should be part of any cash management solution. First, automated systems analyze transactions in real time, identifying anomalies and potentially fraudulent activities. AI capabilities built into cash management help these systems learn over time, improving their detection capabilities and reducing false positives. As my colleague Kevin Grant, Managing Director of Treasury, says: automated cash management produces fewer errors. Count payment fraud among the errors it can mitigate.  

What about spreadsheets? Can it be used at some level and still maintain accurate cash flow management? 

It’s not optimal. However, Bottomline’s 2023 Business Payments Barometer showed that using Excel to manage cash flow manually is found among 32% of Great Britain’s corporate respondents and 38% in the US. While automation is certainly the preferred solution for cash flow management, Excel can be a valuable analytics tool for cash management, provided that companies know the value of their data, the personnel that has access to it, and the restrictions for the data that will be used. As Grant says: “As long as spreadsheets are not used as the main authorization tool for tracking money received and money being paid, it can be a useful supplement to core financial processes.”


Related topics

Cash Management

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Colin Swain

Colin Swain is head of product at Bottomline with 15 years of experience leading strategy, product, design and operations teams in a range of different companies from tier 1 banks and global payments businesses, through to start-ups and retailers.
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