Cash resilience 101: Managing cash flow

All finance functions care about managing cash flow—how much money is entering and leaving their organization over a specific period. And with interest rates hovering above the historical average (2.9% in the United States as of July 2024), relying on loans to bridge a liquidity gap just isn’t a viable option. To avoid putting a strain on organizational financial health, businesses are advised to have more cash and cash equivalents on their balance sheets than in recent years.

That’s what makes accurate forecasting of working capital so crucial—it allows businesses to anticipate periods of cash surplus or deficit and spend their cash efficiently, among other things.

Benefits of managing cash flow

Strategic

• Capital allocation: Knowing where and when to invest for maximum, long-term ROI.
• M&A decisions: Staying targeted in an approach to acquisitions—only moving forward on deals that align with business goals.
• Investor confidence: Upping transparency in reporting and communication—and as a result increasing opportunities to secure funding.

Financial

• Capital structure: Achieving an optimal balance of risk and control considerations to move the needle without apprehension from stakeholders.
• Budget accuracy: Having confidence in your historical data and using it to compare to market trends—monitoring financial performance tightly.

Risk management

• Currency hedging: Understanding how currency fluctuations may impact your bottom line, leaning into hedging strategies that lock in exchange rates and offset potential losses.
• Covenant compliance: Tracking to adherence of debt agreements, ensuring good standing with lenders.

So, more visibility = better organizational planning and resilience. You knew that. But how do you get there? What metrics are important to collect and track? Let’s start with what each department cares about—and then take a look at the data points that will answer their questions.

Departments and the data they oversee

Treasury

“Do we have enough liquidity to meet financial needs and optimize strategic financial performance?”

The data they care about:

Financial market

• Interest rate
• Foreign exchange rate (Spot, Hedge, Forward)
• Credit spreads
• Money market

Cash flow analysis

• Variance between Forecast and Actual
• Reconciliations

Banking partner evaluation

• Banking fee and cost
• Credit and lending information
• Risk management

Regulatory and compliance

• Anti-money laundering regulations
• Know-your-customer process with banking partner
• Financial reporting standards
• Internal controls
• Audit and compliance review

Accounts receivables

“What cash is coming in? When and where will we receive it?”

The data they care about:

Indicators of revenue

• Work-in-progress inventory
• Fixed goods inventory
• Historical Days of Supply Trends

Indicators of demands

• GDP growth
• Labor market trends
• Sector-specific variables impacting future demand

Internal trends

• Customer balances
• Invoice aging and payment patterns
• Credit terms and buying limits
• Discounts, rebates, and disputes

Accounts payable

“What cash is going out? How much and where is it from?”

The data they care about:

• Payroll planning
• AP balance trends
• Balances by vendor
• Payment terms
• Payment timing trends
• Prescheduled payments

The hold up? Unreliable data.

If these departments know what to collect, what’s standing in the way of accurate forecasting? For most organizations, it’s unreliable data. For every data point outlined above, there’s usually a manual component to accessing the latest numbers—like logging into bank portals, pulling statements, and using Excel to crunch the figures.

The good news? It doesn’t have to be that way. Leading technologies can help. Not sure where to start? From finding the solution that works best for you, to helping you roadmap a plan for platform expansion, we’re here.