Cash flow management is extremely important in any corporate business, be it large or small. Today, it is more crucial than ever due to shifting growth outlooks and an uncertain economic atmosphere. As a result, businesses are looking to optimize their cash flow to feel more secure while pursuing growth strategies. In a recently concluded study conducted by CFO research, 61% of the respondents claimed that political and economic uncertainty has made them cautious about over-spending and they have toned down their growth prospects.
In such situations, efficient liquidity management can not only help you understand your exact financial situation but also allow you to expand your operations while considering the risks and benefits properly. No matter how healthy your top line might be, knowing how cash flow management trends affect business will help you prep for growth while giving you an in-depth perspective into your main revenue earners.
Organizations worldwide acknowledge that forecasting is at the heart of an efficient cash flow management process. Along with that it is also a significant driver of business value and helps you gain crucial investor confidence in your products and services. Our comprehensive report on the current trends in cash flow management will help reveal patterns which corporate treasurers in successful firms are employing, allowing you to suit up and get ready for what 2018 and beyond has to offer.
Top company executives are realizing fast that committing themselves to the cause is exceptionally important for efficient cash management. Only when everyone including the top decision makers are involved can forecasting and cash flow management get better. In 2018, expect to see cash flow management become a priority for senior level staff, as this would in turn enable them to efficiently manage the gap between their goals and the overall company performance. More businesses are favoring a stripped-down approach to cash flow management which takes away all buffers and assumptions to honestly communicate the exact liquidity position of the company. This further ensures that distinct parts of the enterprise and divisional heads understand the importance of cash flow management and take adequate steps to work towards a common goal.
While cloud computing has caught up in most industries around the world, organizations are still hesitant to get on board when it comes to cloud-based financial management apps. Security and privacy are of course the biggest concerns, but as of today, there are many reliable vendors with proven competence in this field. Cloud finance is one of the latest cash flow management trends that will take 2018 by storm as many large companies start replacing their legacy software with cloud-based SaaS financial solutions.
These software are not only much more easier to use, but also offer tertiary benefits such as ability to generate daily dashboards so you always have access to important information. Your finance department can also easily share resources and workflows while streamlining billing processes for better functionality. Some of the other benefits include -
For an efficient cash management process, an effective cash forecasting framework is extremely important. This is because business units can easily fall back on the regularly updated data available on a daily basis. While historical cash flows have traditionally been used to build cash flow models, in the future, expect market and economic trends to be included within the model too. This centrally-available, real time overview of the company's cash position can help different business units take independent, but accurate strategic decisions. This in turn will ensure that liquidity risk is managed properly while making informed debt-related and investment decisions.
Today, many companies are looking at alternative modes of financing which allows them to have much better cash flow than traditional models. Almost 19% of the small businesses in UK alone are leveraging the power of mezzanine financing, where lenders acquire assets in a company in cases where the borrower has failed to repay the debt. At the same time, many businesses in the US are still unaware about such financing options. But things are about to change as alternative models of financing such as P2P funding and angel financing become more common. Moving away from traditional bank loans can often be beneficial not only for your bottom line, but also for your cash flow. Some of the sources of alternative funding include -
Cash flow as a process only works when all the data is readily available and streamlined to make forecasting as efficient as possible. But the usage of paper checks goes against the grain and delays the process exponentially. According to recent NACHA data, paper checks still amount to at least half of all B2B transactions performed today. Paper checks require a human process to be built around them, and require manual inputting of data, categorizing it, and then finally linking it to the correct purchase orders, vendors etc. What could have been an hour's job therefore requires more time to be performed. Thankfully, paper checks are already being replaced by e-checks in the EU and Asia. In the USA paper checks are still quite common, but in the coming few years, expect cash flow forecasting to improve based on increased usage of e-checks.
Reporting has always been a pain point for businesses that need to deal with regular cash flow problems. Either the proper cash-management dashboards are not in place or reporting and metrics are still not up to scratch. The right analytics tools can improve your overall performance, while allowing you to track progress. In 2018, more businesses will support innovation and develop solutions for better reporting and dashboards. As reporting software becomes more readily available, many companies that rely on a variety of different financing options would now be able to plan for different financial scenarios. Further, the management will also feel more comfortable while optimizing working capital and reduce costs where necessary.
It is no surprise that businesses all over the world are now leveraging big data to help with key business applications, and now it is finding gradual acceptance in the financial sector, especially in corporate treasuries. In the coming few years, expect big data applications to be incorporated in foreign exchange calculations, cash flow forecasting, liquidity planning, etc. Your finance teams would soon be able to move beyond traditional excel-based templates and leverage big data to view cash transactions in a centralized manner. Access to big data would also help you make calculated decisions about timing your payments correctly.
As companies continue to expand globally, their connectivity to local banking networks, partners, etc. becomes more complex. Earlier, corporates partnered with their banks and clients through proprietary electronic systems, which then gave way to terminals, and was then followed by desktop software and web-based applications. Throughout this process constant focus in maintained on security, confidentiality, and ease of use. At the same time, connectivity is still a big issue with small banks, SMEs, etc. In recent years, many large companies have invested heavily in financial tools, which can integrate cash management functionality, vendor payment initiation, etc. These tools can directly link businesses to their banks in a secure manner, which bypass web front ends and directly interact with the banks' processing middleware. In the coming year, we expect to see rapid expansion of such anytime, anywhere, and flexible connectivity formats such as SWIFTNet.
While most companies tend to make cash flow management forecasts based on experience and past data, the current economic situation is fast changing the status quo. Today, we are seeing rapid absorption of many booming trends in small business cash flow management, allowing businesses to face the competitive atmosphere with confidence and agility. To be good at cash flow management, not only should you be future-ready today, but start fishing where the fill will be, instead of waiting for the fish to come to you.
Ineffective cash flow management can be catastrophic for your business. Several small businesses go bankrupt because they do not feel the need to make cash flow management a part of their day to day business. There's only so much one can do with ledgers and books. Similarly, for large companies, predicting cash flow can help them expand faster and in a much more efficient manner as compared to their competitors.
At Flatworld, we safeguard you against excessive interest payments, higher capital costs, and high risk balance sheets by providing high-quality cash flow management services customized to your financial needs. Our services are priced competitively, and have been employed by global top performers, fast-growing startups, and small businesses around the world. Contact us right now to learn more about how we can help you manage your cash flow effectively.