Managing liquidity risks is critical for companies, and COVID-19’s unprecedented supply chain disruption makes it more difficult to do. The Organisation of Economic Co-operation and Development found that approximately 7 to 9 percent of “otherwise viable companies” would become financially distressed due to COVID-19’s impact. And unfortunately, the pandemic is only one source of market volatility. Other events have and will continue to destabilize businesses and their carefully planned cash flows.
End-to-end cash flow visibility—access to comprehensive real-time data showing when money moves in and out of your business—makes it much easier to make strategic financial decisions that mitigate risk in uncertain times. However, only about 33 percent of businesses have the ability to improve their cash flow visibility to maximize liquidity.
This article will give treasurers a better understanding of how cash reporting software provides this critical enhanced cash flow visibility. We’ll also see how that visibility can help them overcome liquidity risk management challenges in especially challenging times.
Visibility Makes Your Short-Term Liquidity Plan More Agile
A cash reporting platform gives you real-time cash flow information in one central location. This enhanced visibility allows you to make more thoughtful, nimble decisions to maintain short-term liquidity because you can quickly pivot to identify and address short-term bumps in the road with greater ease.
Short-term liquidity planning becomes even more crucial to managing risk during uncertain times, especially when dealing with tight working capital cycles or operating on fine margins. Many businesses don’t have this critical emergency fund, and the effects can be dire. A recent study found that around 200,000 companies in Italy were at risk for illiquidity due to a collective shortfall of €72 billion during COVID-19.
With real-time, centralized data at your fingertips, you can make more strategic decisions to ensure your company meets short-term cash flow obligations on time. For instance, you can better manage and monitor cash flow and liquidity with an enhanced view of group-wide cash positions.
Better visibility in a cash reporting platform also reduces the risk in short-term liquidity planning by allowing you to bring greater depth, granularity, and accuracy to daily and weekly cash reporting. The drill-down capabilities allow you to review individual line items for patterns or problems with enhanced speed and accuracy. Additionally, this simplified process helps you easily identify financial anomalies and make reporting adjustments on the fly.
Without this enhanced insight from a cash reporting platform, your productivity and reporting accuracy will be negatively impacted—to try to accomplish the same task manually, you’d spend hours compiling and trying to analyze data in a cumbersome spreadsheet. IBM found that “88% of all spreadsheets contain at least one error,” and while that may not seem like a lot, countless companies have lost millions from just one spreadsheet mistake.
With greater cash flow visibility helping you with short-term liquidity planning, you also gain a greater ability to to focus on bigger challenges and strategic opportunities coming down the line since you aren’t constantly putting out fires. Not only does this enhanced visibility give you a competitive advantage, but it also helps to build the C-suite’s trust in your ability to strengthen the business.
Visibility Provides a Clear View of Future Cash Needs
Improving future cash flow forecasting is a top priority for treasurers, according to The European Association of Corporate Treasurers’ 2021 survey. The report adds that COVID-19-related “uncertainties surrounding the economy explain the difficulty in producing reliable and accurate forecasts.” Better cash flow visibility in a cash reporting platform can mitigate this issue during turbulent times because real-time data allows you to create stronger models that can account for future economic impacts like supply chain or interest rate changes.
This enhanced cash flow visibility is key to conducting more accurate scenario modeling, which is especially important in difficult financial times when so many things seem up in the air. With real-time data housed in a cash reporting platform, you can clearly identify strategic options to address a variety of daunting “what ifs” and make decisions that benefit your business the most in the long run.
For example, heightened visibility helps simplify the critical process of covenant forecasting and also allows you to proactively identify potential disastrous cash shortages. Not only does better visibility give you greater insight to prevent financial issues down the road, but it can also help you make the most of positive opportunities. This can range from the ability to maximize income from lending to easily spotting new avenues for future working capital investments.
Without real-time insight into your cash flows, long-term planning requires much more guesswork because you don’t have access to the complete liquidity picture. Manually trying to figure out when and how your cash is moving increases the potential for impending risks to go unnoticed, which can quickly stack up and spell problems like insolvency down the line—especially for businesses operating in a turbulent market. And even if your business manages to survive a negative surprise, the last thing your C-suite will want to hear from their treasurer is that it could’ve been prevented.
Visibility Reduces Strain on Treasurers
Better visibility in a cash reporting platform makes it easier for treasurers to make time for all the other aspects of their complex jobs. This is particularly important in tough economic times like the COVID-19 pandemic when treasurers are forced to contend with managing increased liquidity risks while also juggling even more responsibilities than usual to ensure the company’s survival.
Since treasurers have to handle additional critical priorities during a financial crisis, the ability to quickly gain comprehensive insights into global cash flows with a few clicks of a button is an invaluable asset that strengthens their job performance. Better cash flow visibility alleviates the extra mental burden of having to manually compile or sort through data and helps treasurers maximize their limited time. With real-time data and a simplified analysis and reporting process, treasurers can feel more confident in their strategic recommendations to the C-suite because they aren’t worried that they missed something due to human error.
Reducing the strain on treasurers with a tool that provides enhanced cash flow visibility is a form of risk reduction because it decreases the chances of costly employee burnout—a very serious problem for businesses that only got worse during COVID-19.
Cash Reporting Platforms Make Better Visibility Possible
As Accenture notes, companies who take advantage of “accessible data and advanced analytical capabilities will be able to respond more quickly, accurately and successfully to COVID-19 disruptions.” The better visibility you have into your real-time cash flow with a cash reporting platform, the better decisions you can make to manage liquidity risk and help your company successfully navigate turbulent times.
