Payments & Cash Management for Treasury Teams
The simple way for your organization to automate spreadsheets, develop timely cash visibility and greater payments control without the complexity of a TMS implementation.
The Payments Barometer research report revealed that almost half of businesses, from SMEs to Enterprise treasury teams, struggle with accurate forecasting, and many are still using manual excel spreadsheets. Our podcast guests discuss the results and offer listeners valuable insight into how to improve your cash management and forecasting for better visibility.
Voiceover: The Payments Podcast, from Bottomline Technologies.
Kate Eyres: For many businesses across the UK, cash-flow management has never been so important. It has allowed them to understand their cash position in a very tough year, but in this year’s ‘2021 Business Payments Barometer’, where we survey 800 financial decision-makers, almost half have shown that they struggle with forecasting.
Hi, I'm Kate Eyres, host of today's Payments Podcast. Today I'm joined by Richard Ransom, Strategic Customer Success Manager, and Tracy Kantrowitz, VP of Marketing for Treasury. We're here to discuss why businesses are prioritising receiving money more than ever before, and if their processes are up to challenge of managing it. Hi, Richard, Tracy.
Tracy Kantrowitz: Hello, Kate.
Richard Ransom: Hello.
Kate Eyres: I briefly mentioned in the introduction that businesses are prioritising receiving money more than ever before. With this in mind, and the tough year businesses have faced, does it surprise you that, in light of COVID-19, 64% of businesses said they're willing to renegotiate payment terms in order to manage cash flow better?
Tracy Kantrowitz: This isn't a surprise to me at all. I believe that a major driver is stemming from a business continuity perspective and companies really needing to understand what their financial endurance or stamina is, particularly through times of crisis.
At the start of the crisis, everyone was really looking at their liquidity plans and reforecasting, basically, on a daily day. Receivables are very key to that, so I'm not surprised that businesses were really looking at their payment terms.
It was very important, as you said, to understand what money was coming in, particularly that receivables are a major source of liquidity. As I mentioned, with forecasts being revised daily, I think that companies really just wanted to have a little bit more predictability in terms of when they would receive their cash, when they would receive payments in from their customers.
As we know, COVID put a lot of pressure on a lot of businesses, and customers were struggling. So, I think it was more important to these enterprises to take a look at the terms that they put out for their customers, renegotiate them, and make them a little bit more realistic for their customers, in order to ensure that they'd actually get the receivables and have the payments in.
So, I'd like to say that there was a little goodwill around it, big guy helping the little guy, but really I think it was a strategic move by these enterprises to create a little bit more predictability in their own receivables and in their own cash forecasts.
Richard Ransom: Yes, that's interesting you talk about that: that need for businesses to look at those payment terms. I think, in the smaller business, the percentage willing to renegotiate drops to about 52%.
I think that's really around giving away predictable cash reserves by extending credit in the current environment is often a luxury these sorts of organisations can't afford. So, they need to be able to work out how much money they have, day to day, week to week.
The key issue for them is actually just getting that money through the door. Extending payment terms out when often the people they're dealing with pay a bit faster or looser with those terms, as well, is quite difficult. So, taking a 30-day payment term out to 45 to 60 could really damage their business and cause them problems, which is why, I think, that number is so low.
Kate Eyres: Interesting you mention cash reserves there, as I think this highlights the need for good cash-flow forecasting. This year's ‘Payments Barometer’, for the first time, highlights how businesses are managing their cash-flow forecasts. Were you surprised with the results on this?
Richard Ransom: One thing that comes out of this is really positive: at least one in two businesses across the board are using cash-flow management software. I think there is a much greater need for organisations to embrace the technologies that will allow them to do this. I think some organisations may feel that they are too small to benefit, or that the solutions that are out there are too big and unmanageable, or won't fit their particular circumstances.
Now, there are lots of elements of predicting cash flow, but you can decide how granular you make that. Even just making some slight changes and getting proper tools in can make a huge difference to knowing where your cash is, and also, really importantly, when your cash is as well, so knowing when you're going to get paid, when to expect money in.
That's a really important part, so I think using dedicated tools can massively help in this process. Although spreadsheets can become – and I think we'll talk about that a bit later – can be a great tool, it is just a spreadsheet. It's not a dedicated application written by people who understand the business and needs of cash-flow management.
Tracy Kantrowitz: To add to what Richard said, I think that spreadsheets, they're just known and loved. People personalise them. Organisations of all sizes use them. It was interesting to me, in the survey, that one in four enterprises are still at least partly managing their cash-flow forecasts – and this is at the enterprise level – in Excel. It sounds terrible, but another way to look at it said, ‘Three out of four are off spreadsheets,’ hopefully.
Just looking at the data, there is an element of surprise that so many are still relying on spreadsheets, but I don't think people realise – especially from a large enterprise perspective – how difficult it can be to move off the spreadsheet. As we mentioned, they're very personal. They're reliable. They're known, right? When something is known to how you work, it's very difficult, so there's a cultural element, even in the larger organisations.
Also, from the larger organisation perspective, we have to look at how their business may be running. Some of these larger companies, they may be highly acquisitive. They may be geographically decentralised.
When you have those conditions or those situations, particularly in the highly acquisitive companies, it can often be a little bit difficult to standardise technology and automation. That’s why a lot of these companies may still have spreadsheets in some locations, in some business units.
A lot of times, again, if it's an acquisitive company, they may have inherited companies that aren't necessarily using automation yet, so that's why the spreadsheets seem to stick around. Or maybe the processes and the systems aren't fully integrated. There is a technology strategy or cultural element to having that mix and not being fully automated, even though you would think a large organisation is mature.
Another part of that, we mentioned the integration element of it. If the systems that they're using are not modernised, or they're not cooperative, or they're not built to be cooperative and to be able to speak to the different systems within the organisation, that's when you also wind up doing a lot of work offline into spreadsheets. I think it's good that it's not four out of four still on spreadsheets, but there's certainly a lot of work to be done.
One other thing that I would add to that: with the difficulty of integrating and coming up with that full, standardised technology plan to get the whole organisation off of spreadsheets, sometimes it's that the thought of a transformation project to that scale can be very, very daunting, very time-consuming. Of course, it can be very expensive, so again, sometimes, people just tend to go with what they know. Unfortunately, that’s spreadsheets.
Richard Ransom: Yes, and although 25% of larger businesses are still using Excel, which is a great result for smaller businesses, this goes up to 37%. That's quite a large number. I think, when you are a smaller business, that accuracy around cash position is vital, for many reasons, so looking to make short-term investments in stock or resource to drive the business, or understand what extra funding may be required to manage immediate or upcoming costs.
Having access to dedicated tools is going to help you, and it shouldn't be seen as the domain of larger organisations. I think the risks around Excel, as you said, they are well known within an organisation, but they tend to be full of macros and equations that, maybe, one person in the organisation has built over time.
Should that person leave the business, that can lead to problems. It's not a dedicated application, so there are going to be gaps and there are going to be things that Excel can't do, because it's not set up for that.
But you're right: getting people off a spreadsheet is difficult, but there are tools. It is not a difficult integration exercise to do it, especially for a smaller organisation which may not have links to that many banks and may not have that many systems of records to talk to. But anything you can do to improve that accuracy and the timeliness of the data is going to help.
Kate Eyres: Tracy, on that point, 43% of enterprises have also said they're using automated treasury management systems.
Tracy Kantrowitz: Yes, I thought that would actually be a little bit higher. I was a little bit surprised at that 43% number. There certainly are the challenges that I mentioned before in terms of creating a standardised technology culture, but I thought they would be a little further along and we'd have more people, more companies using a TMS system.
That’s because a TMS is really key to really achieving that accuracy, right, to really being able to achieve that predictability and intelligence from a financial perspective in an organisation?
That's because the TMS is there to really centralise and be that aggregator of all the data, whether it's external data from banks, ERPs, whether it's internal, the aggregator and collaborator of internal data.
It's really that hub where it all comes together, right, where people can really see what their positions are, understand what's needed to create that forecast, and really create an accurate forecast? It sits across all the platforms that we mentioned: the banks, the ERPs. More importantly, it sits across all the workflows, such as payments. That piece is actually extremely, very important.
Recently, we produced another podcast here at Bottomline, and I think it was highlighted. It highlighted some very, very eye-opening stats. One of them was that using a TMS could actually better help businesses prevent fraud and manage risk.
The research that we discussed showed that businesses that actually use a TMS say that they have, maybe, seen an average loss of £179,000, whereas those who do not use a TMS can report upwards of £200,000. That’s nearly a 20% difference, so by automating those processes, using the right automation tools, centralising those controls, companies can really significantly reduce risk.
When you look at the responsibility of an enterprise, some of them are public companies. They have shareholders. They really have that responsibility from a financial governance perspective. So, again, I was a little bit surprised that that number was what it was, because there is really a lot of value from a risk management perspective and a forecast accuracy perspective.
Kate Eyres: I wanted to briefly mention AI and machine-learning programmes. Across the board, adoption is pretty low, at 21%, which isn't a huge surprise, due to the availability across the market. Do you see this as an area for future opportunity for businesses of all sizes?
Tracy Kantrowitz: I think this is a huge opportunity, not only for businesses but also for technology providers as well. According to the study, a little over one in five decision-makers that we surveyed stated that they use automated treasury management systems and that they include AI or machine learning, respectively.
I think that's actually a pretty good number because I think right now we're still at early stages of education and availability of some of these things, right? I think AI, to many organisations, regardless of size, still may seem a little futuristic, a little bit of that extreme tech, so I think that there's some education to being able to use these types of tools.
I would suspect that, with the pace of innovation for some of the technology providers, particularly in the TMS arena, enterprises are probably using AI and machine learning in some of their capabilities, but they may not realise it. So, if there was some more education in the market, I would think that that number, that one in five, which is actually very good for this day and age, I think would probably be a little bit higher.
Then also, from an availability perspective, there are those forward-looking and forward-thinking innovators in this space, but I think we'll see over the next, maybe, two to five years that we're going to see a lot more software providers using this type of technology in their solutions. It will become more commonplace. I think one in five is very good, and I think that we're going to see it increase.
Now, the reason why we want this trend to continue and we want to see more businesses use this is because it can really add more strategic value in the work that they're doing. We keep saying, “Cash flows and cash-flow forecasts are extremely difficult to achieve.” There are so many ‘what ifs’ and there are so many unknowns, right?
Treasury teams, they'll have to do different versions of their forecasts, so constantly changing versions. If we can automate that and take out the element of human intervention or human error, by leveraging more capabilities – more intelligent capabilities, such as AI, such as machine learning – the task of creating those forecasts will, one, be easier to do. Two, there'll be a lot more accurate.
Three, they'll be able to add a lot more strategic value because the purpose of those is not just to see the now of what we're doing, but it's also to help take into consideration the future and to allow companies and businesses to be more predictive with their financial management. So, again, I think it's something that we're going to see a big increase in and continued development in the future, and I think it's very necessary as businesses mature.
Kate Eyres: Richard, larger organisations have the money to invest in more advanced techniques. So, is there any opportunity for small businesses to look at new industry payment initiatives, such as Request to Pay, Confirmation of Payee, or, in the future, Enhanced Data?
Richard Ransom: It's a good question, Kate. These payment industry-driven propositions have been put together by looking at business detriments and pain points, with all sized businesses in mind, not just the larger enterprises. These developments will help to provide a more integrated, end-to-end workflow.
Request to Payee links the bill to the payment and allows a conversation between the biller and the payer. Enhanced Data ensures more useful reference data travels with the payment. Today, Bacs only has an 18-character reference, which isn't enough for most payments.
Now, what you can do with Enhanced Data is potentially carry a URL which links to supporting documents or multiple lines of reference where you could only use one before. You can even have an email address as somewhere to go if you've got an issue with a particular payment.
With all those things, something else Confirmation of Payee does is help to ensure the payment is made into the right account, and it mitigates fraud and error. When that bill is so closely linked to the payment, this also helps to drive smarter financial analytics, so who are my good payers? Who are my late payers? Who pays partially, typically, on a monthly basis? Who are the potential problem customers, and what is the adherence to terms like? Are my credit terms too generous? Are they too tight?
Request to Pay and Confirmation of Payee are nearly with us now. Enhanced Data will be with us very soon. Unfortunately, what we've seen is a very low awareness within the small business community around these payment terms, with only about 20% having heard of them.
It's the job of the whole payments industry to make a bit more of these developments, to tell more customers about them. We can do a lot, as Bottomline, to make people aware, but this has got to come down from Pay.UK, and the regulators, and the banks as well, who will be supporting these processes, to tell customers about them.
Kate Eyres: Finally, if we end on cash accuracy, with so many management options available to businesses, and cash flow management being such a key priority for businesses of all sizes, we’d think cash-flow accuracy would be better. Almost one in two businesses have shared that their cash-flow forecasts are rarely accurate.
Tracy Kantrowitz: I think that's a fair statement, Kate, and it’s for all the things that we said previously: spreadsheets with lots of errors, disparate systems, not always having access to bank data, or data within other areas of the organisation.
I think that really what we've been saying this whole time, using more systems like a TMS solution, putting better governance and workflows around payments, things like that, will certainly help with that.
Of course, future advancements, such as AI and machine learning, to really, again, take out the human limitations of achieving a forecast, and really relying more on technology and intelligence through data, will help improve those forecasts in the future.
Richard Ransom: I think, as we've mentioned, or as I've tried to mention today, smaller organisations shouldn't shy away from looking at technology to help them with things like cash-flow forecasting and making their cash positions more accurate.
I think there is a perception that treasury management systems are really the domain of larger corporations. That's not the case. I think some of that may be from previous experience of TMS which were delivered onsite, where there was a lot of integration, but that's not the case anymore.
Tracy Kantrowitz: I think that's an excellent point, Richard. When we look at previous generations of TMS solutions, that on-premise, server-based model, they were very, very expensive to install, very expensive to maintain. Once they were in, you had absolutely no flexibility and you didn't have choice. They were very much a luxury item.
I think today's generation of technology really is reflective of the same experiences that we see on the consumer side in terms of how we access technology and how we leverage technology.
Today's system, built on the cloud, does offer us a lot more of that flexibility, a lot more of that collaboration, but what we're seeing now is that we've gone even beyond the cloud. We look to offer things like digital services that allow us to easily connect, easily integrate, and cooperate with all of the other systems, making it very, very easy to centralise.
As technology becomes more mainstream and these experience start to mimic and converge with what we're seeing on the consumer side, it passes along greater economies of scale for the providers to not only create these technologies but also to deliver and maintain. Those economies can actually be passed along.
Kate Eyres: Thanks, both. They were really interesting points that you both just made. I think, as cash flow becomes more important to businesses over the next 12 months, it's clear that there's an increased opportunity to manage it quicker and smarter.
For any listeners wanting to read the full ‘2021 Business Payments Barometer’, it's available to download from ‘bottomline.com’. Unfortunately, that's all we have time for today, but in the meantime you can listen to more episodes on all things payments, at the touch of a button, using your preferred provider. See you all next time.
Voiceover: The Payments Podcast, from Bottomline Technologies
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