Achieving operational Efficiency, Visibility & Agility in Cash management – Practical Guide

Harvesting the low-hanging fruits of payments process automation…

by Evelyne Legaux on 20-06-2024

 

This article dives into how companies can achieve agility & heightened visibility in Cash management while reducing costs in the much scrutinized area of Operational Finance. More specifically, we focus on the pivotal dimension & benefits of automation for payments efficiency.

 

According to a recent survey, 84% of Irish CFOs view improving efficiency as a strategic area of focus over the next few years, along with costs reduction. One in five also view investment in new technologies as a top priority in 2024.

Over the past several years, Working Capital & Cash management in particular has been a major area of scrutiny at Executive Leadership and Board levels, not just to maintain a solid grip on liquidity through challenging times but also because, in a context of inflationary pressures & high interest rates, optimizing the business Cash Conversion Cycle is pivotal for companies. As such, Cash management requires a high degree of visibility, control over resources & agility.

In fact, the wider area of corporate Treasury operations has been and still is significantly transforming, to become more streamlined, agile & strategic. The main objectives for companies in that space are to revolutionize operational efficiency & Cash visibility, achieve greater agility in liquidity management, enhance financial transparency and strategically manage risks, ultimately bolstering effective informed decision-making.

To that end, leveraging the fantastic capabilities of new technologies to optimize Cash efficiency is key!

Successful companies focus on integrating and centralizing their ERP, Treasury management systems & multi-bank platforms, making their banking structures leaner and optimizing their Cash management processes.

In this whole transformation of Treasury operations exercise, one acute aim is to achieve a seamless flow of financial data across the entire technology infrastructure, in order to enable more accurate Cash positioning & forecasting. This is crucial for companies trading in multiple geographies & currencies across diverse regulatory environments, in particular.

At the core of it all though, managing payments efficiently – whether incoming or outgoing – is pivotal!

 

Automating incoming payments… a true ‘Game-Changer’

More often than not, operational efficiency and intelligent process automation go hand in hand, and this is especially true of transactional Finance processes. In this regard, Cash applications of incoming payments being essentially a rule-based & repetitive daily process in the O2C cycle, comes as the perfect example.

Automating Cash applications is a straightforward exercise that indeed brings clear & measurable benefits:

• Significantly increased open items matching rates – actually nearing 100% - without any human intervention,
• Elimination of unapplied Cash and possibly of unidentified Cash as well, thus making all incoming Cash in the bank immediately available,
• Fully updated customer accounts at all times, thus preventing the business adverse impact of unnecessary Credit hold situations,
• Speedy & accurate bank account reconciliations,
• Last but not least, enhanced customer satisfaction thanks to the elimination of unnecessary payment remittance queries or Cash collections calls.

By removing daily manual tasks and the need for exceptions handling, and boosting both the process speed & accuracy, automating Cash applications can be a quick & easy game-changer for companies!

 

Automating outgoing payments… a business operations ‘Must Have’

As for the P2P cycle, operational efficiency is closely associated with the need to de-risk supply chains & operations, therefore is often of a more strategic nature. Securing business critical supply implies ensuring that the related suppliers/vendors are supported by their clients through an easy & reliable Accounts Payable (AP) payment process.

Should this not be the case and knowing that a manual AP process is typically cumbersome & error-prone, suppliers/vendors would be at risk of not getting paid, thus potentially causing interruptions or disruptions throughout the entire supply chain.

The good news is automating AP is another area of Working Capital & Cash management where the benefits are many, and the technological solutions plentiful on the market & easy to implement:

• Ability to process supplier/vendor invoices (from validation to GL coding to matching to automatic approval) & other documents anywhere, anytime through electronic capture, reading & storage,
• Full elimination of paper & minimization of exceptions handling and supplier/vendor queries,
• Speedy & transparent internal workflows & approval flows,
• Ability to control who, how & when suppliers/vendors get paid and avoidance of fraud,
• Greater visibility of outstanding liabilities and actual spend vs budgets,
• Faster & secure online processing of outgoing electronic payments,

• Better leverage of early pay discount opportunities and avoidance of late payment fees, thus supporting better Working Capital management,
• Access to real-time data throughout the AP process, thus enhancing internal controls, audit trails, business decision-making and cross-functional collaboration with Procurement,
• Dramatic reduction in average transactional costs per AP invoice,
• Self-service capabilities for suppliers/vendors via a secure portal where invoice status can be accessed real-time anytime,
• Last but not least, elimination of human interventions freeing up time for more value-add activities, and enhanced relationships with suppliers/vendors that should ultimately lead to better procurement T&Cs in the future.

All the above benefits combined give companies a definite  competitive edge in terms of both costs & liquidity management, not to mention the inherent provision of the tech infrastructure needed to support flexible working models.

 

Successful automation of payments… Key Enablers

Beyond selecting the right technological solution itself, what should companies do to achieve payment automation success?

• A recommended approach is to FIRST step back & take a critical look at what you do today and how you do it, with a view to identifying inefficiencies and the root cause of unnecessary process delays, third-party queries, etc… The next step then is to optimize your relevant business processes & policies PRIOR TO embarking on your actual automation Forward-thinking business process design is of the essence here…
• Develop a compelling vision for your ‘to be’ Finance operating model and a clear strategy to meet your goals through the leveraging of your chosen technological solution capabilities.
• In a dynamic global business landscape, it’s important to ensure that the O2C, P2P or corporate Treasury teams involved possess a good understanding of your market challenges, existing operating models & business processes, in other words top business acumen combined with solid relationships with banking partners.
• Last but not least, foster a culture of innovation & empowerment throughout your organization. As the wider Finance function moves away from traditional roles to become more strategic & forward-looking, the key to success ultimately resides in your ability to listen to, value, trust & support your people throughout the journey.

 

Giving your customers and suppliers/vendors the feeling that your organisation is “reliable and easy to do business with” ultimately comes as THE secret sauce to gaining competitive edge and being resilient.

 

Let us know your thoughts or questions in a comment below, by email on info@financeotcconsulting.com or indeed through our Contact page.

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