Effective cash management can mean the difference between a company’s success or failure. It is becoming increasingly important for finance teams to manage cash as effectively and efficiently as possible in order to ensure business continuity.
Simultaneously, as companies grow in size, cash management can become a significant burden due to the incremental complexity of their setups and varying legislation in different countries. When you start using multiple accounts at different banks, ERP systems, and other financial systems, efficiently managing data centrally becomes nearly impossible. This is especially true as your team and company grow in size and you become reliant on the input of multiple stakeholders in the process. Furthermore, it is typically difficult for businesses to gain instant or real-time visibility into group-wide cash positions and cash flow details, resulting in startup risks and failures that are difficult to predict.
Manual cash management requires a significant amount of time and resources, and the result is frequently prone to error. However, with the right solutions, most routine tasks that are done manually can be easily automated. There are various strategies for automating your cash management, and automation has several key advantages.
What is the definition of cash management automation?
Cash management automation is the process of automating tasks that are typically performed manually for businesses, such as data collection, information reporting, capital management, currency management, and financial risk management. The automation of such tasks enables businesses to be more resource efficient.
The Advantages of Automated Cash Management
1. Enhanced efficiency
Increased efficiency is the primary advantage of automating your cash management. Automation with the right tool ensures that processes are quick and error-free. It also eliminates manual tasks such as data collection and aggregation from multiple sources, user access management, and reporting, particularly in real-time. Streamlining processes with automation typically includes audit trails, which can help you mitigate potential fraud attempts.
2. Increased precision
If you report on your cash flows in an Excel sheet and manually enter data from multiple source systems, banks, or entities, the chances of errors occurring are high, potentially jeopardizing the company’s liquidity. Certainly when multiple people are working on the same Excel file and you rely on the accuracy of data entries from multiple subsidiaries, for example. Instead, automatically retrieving all data directly from banks and source systems in a single source of truth will greatly improve the accuracy of such processes. As a result of the accuracy and instant access to financial data, your finance team will be able to make quick and informed strategic decisions.
3. Financial savings
Automation typically necessitates an initial investment, but the return on investment can be greater than the cost of a solution. Because of the standardization and automation of cash management processes, you can save a significant number of hours with the entire finance team. All of the time saved can be spent on previously neglected tasks. Saving time gives you more time to analyze cash flow data, which allows you to make quick decisions for the company.
4. Audits and compliance obligations
With automated processes and centralized cash management, audits and compliance become much easier. The requirements imposed by auditors and compliance regulations are frequently easy to extract from automated cash management platforms. Furthermore, most systems use audit trails, which allow you to see exactly what users have done in the past. This data can be used in audits and to detect fraud or irregularities in cash flows.
5. Enable precise cash forecasting
Without any manual errors, automated cash management tools retrieve more accurate data directly from all source systems. Some tools even forecast cash flows using predictive analytics based on historical data.
6. Reduce liquidity risk
Because of automation, the more accurate your cash flow data becomes, the better insight you gain into your liquidity risk. Furthermore, automated tools enable you to retrieve your liquidity position at any time. This allows for faster decisions about whether to seek external or internal funding and whether to invest in potential business opportunities.
7. Improve FX risk management
Foreign exchange risk management is fraught with difficulties. By capturing all trades and payments that are exposed to FX risk in a centralized location, automated tools will enable you to address the majority of challenges. With up-to-date FX rates, the system automatically calculates the impact of FX risk on your liquidity positions.
8. Simplify payment and reconciliation
Fully automated payment solutions offer a comprehensive payment hub for automating, managing, and centralizing local, cross-border, and global payments. And, to gain more visibility and control over where your cash is going, automatically connect ERPs, financial systems, and banks to process outgoing payments for accounts payable, treasury, payroll, and manual payments. Your payment matching processes will allow you to process payment batches without worrying about where payments are transferred to if you use automated payment reconciliation and the right posting rules.
9. Detect forged payments
Irregular payments are immediately identified using automated workflow settings in payment reconciliation processes. This helps to keep your company from making fraudulent or incorrect payments. By automatically screening your outgoing payments against lists of sanctioned counterparties, automated sanctions screening can also help eliminate illegitimate payments. Both processes take a long time to complete manually.
10. Global cash visibility in real time
By combining all available data throughout the organization, regardless of the number of banks, ERP systems, subsidiaries, entities, financial systems, or other source systems.
Various methods for automating cash and treasury management
Purchase a cash management or treasury management system
Consolidating all data into a single system, such as a cash or treasury management system, is the best way to automate your cash management. When you centralize all of your data into one platform where you can also manage it, you eliminate the need to consult multiple systems, employees, entities, and bank accounts. FX risk, guarantees, loans, liquidity, cash forecasting, bank accounts, reconciliation, payments, sanctions screening, bank connections, bank fee management, reporting, trade finance, ERP connectivity, and more are all managed in some cash and treasury management systems.
Use a payment platform with a single source of truth
There are payment solutions that automate the majority of the payment process by controlling and managing all payments end-to-end by combining all payment data from various sources such as banks and ERP systems. Payment reconciliation can even be used to automate payment matching processes with some tools such as, pay stub generator. This is an important strategy for many companies with a high volume of transactions to improve payment processes.
Use a cash forecasting tool instead of Excel
Most businesses that use Excel for cash flow forecasting struggle with the manual work and errors that the process is notorious for. Excel forecasts become increasingly difficult to manage as businesses grow. This is when cash flow forecasting tools become appealing to finance teams, as they provide the automation required to reduce errors and time spent on the process.
Choosing the Most Appropriate Automated Cash Management System
Finally, it is up to each cash and treasury team to implement the best solutions for automating cash management processes. Investments in such systems must be carefully considered, and various tools should be compared to determine which best meets your company’s needs. To assist you, we wrote another article in which you can compare the top ten best cash management solutions.
Despite the initial cost of a cash or treasury management system, the benefits of automating cash and treasury processes in larger companies usually outweigh the costs by a large margin. Most treasurers and finance teams consider cash management system implementation to be arduous, but it is typically accomplished with the assistance of support services from a solution provider. Implementation can be completed in a matter of days, depending on the complexity of your setup.