The past few years have been rough for businesses. Inflation and supply chain disruptions set a dour mood and, in 2022, 35% of executives predicted a recession on the horizon.
According to a new survey from PWC, however, today that number’s down to 17%. With low unemployment and lowering inflation, executives are daring to dream of a “soft landing” for the US economy.
As such, many business leaders are moving from simply weathering the storm to thinking about how they can grow again. Specifically, they’re looking at technology. That’s no surprise – recent developments in generative AI and serverless cloud computing have sparked the imagination.
According to the survey, 59% of executives are looking to invest in tech over the next 12 months. In other words, your competitors will soon be making the leap from defense to offense, leveraging tech to streamline workflows and boost bottom lines. Don’t get left behind!
Invest in the Right Tech
So, now’s the time to hedge your bets with targeted tech investments, targeted being the key word. Though things look to be improving, you still need to be cautious – you might not want to invest in a high-tech coffee maker complete with robot barista.
Your best bet? Investing in technology that helps you be cautious by telling you exactly how much liquidity you have, and how much risk it’s exposed to. That’s the main focus of bank API-powered, cash flow management software.
Using APIs, the software securely communicates with your business banks. It gathers historical transaction info, as well as current transaction info in near real-time. This allows you to see your entire financial position from one, centralized platform – a feature that’s possible across dozens of banks and currencies.
Before open banking, you’d have to log into a bank portal, record all relevant information in spreadsheets, then move to the next one, repeating the process. With the right software, you only have to deal with one log-in, and you don’t have to do calculations to determine your current cash position. Thanks to APIs, you simply have it right there in front of you!
Why Does Visibility Matter?
The smooth operation of your business all comes down to liquidity – knowing how much working capital you have, how it would be best deployed, and when to deploy it without jeopardizing your ability to pay liabilities and expenses.
With API-based software, you can see how each decision you make – whether that’s scaling up marketing efforts, taking out loans, or buying a new piece of equipment – will affect your overall position now and down the road. This way, you grow in a safe, sustainable fashion and can confidently make the transition from a defensive posture back to a “war footing.'”
From the centralized platform – think of it as your financial Pentagon – you’ll be able to see if you’re overborrowed, or relying too much on a specific foreign currency. If you’re overexposed, you can then make adjustments from that platform. Once you have visibility, the next step is forecasting.
Cash flow forecasts provide a running view of your future cash position based on the business decisions you make today. If you see cash flows are less than optimal, you might unlock “hidden cash” by tightening your inventory turnover rate or speeding up AR collections.
Overall, visibility means reduced costs and higher returns. In the PWC survey, 89% of CFOs said that, when it comes to technology, they need to find the right balance between cost cutting and investing for growth – API-based liquidity management seems to be the perfect answer.
Automation – The Key to Efficient Cash Management
When most of us think of treasury, we think of having to record everything manually. But doing this isn’t ideal – it can result in many errors (not to mention being a huge time sink). While accurate cash flow forecasts are an incredibly useful tool, flawed cash flow forecasts based on errors will lead you in the wrong direction, potentially to disaster.
With automation, all transactions are recorded as they occur – you know your data is solid and your forecasts accurate. By saving time, the treasury department can make the move from simply collecting and reconciling data to analyzing it and taking action – from cash accounting to cash management.
Next to generative AI (which we’ll get to in a bit), CFOs are looking to leverage advanced analytics. Machine learning algorithms like those in Trovata can refine your forecasts by discovering trends in historical data that would otherwise be difficult to uncover. The more you forecast, the more accurate they get.
You’ll save time by automating reporting, helping eliminate the visibility gap between departments. You can then search through data with Google-like search based on tags to find exactly what you’re looking for, instead of scouring multiple bank portals.
Cloud-Based or Cloud-Native?
The survey from PWC mentioned that executives are looking for “cloud” technology. Cloud computing is where you’d have access to external resources that may go beyond your own processing power.
Sounds great, right? Especially when you’re dealing with large amounts of data, this can save huge amounts of money.
But there’s a difference between “cloud-based” and “cloud-native” technology.
“Cloud-based” is often a marketing label used by older companies who want to play to the interest in cloud technology. The issue is they’re taking their old software and merely slapping it on Azure – nothing has really changed. That is, they’re not taking advantage of any those cloud computing capabilities
Cloud-native software, on the other hand, has been designed specifically for the cloud. As opposed to “cloud-based” software, cloud-native tech has increased flexibility thanks to auto-scaling – where you pay based on the processing capacity you’re using, as opposed to a flat fee. The microservices architecture means updates can be developed and deployed independently, so the software can be customized to changing needs.
So, be sure to get the full benefit of cloud technology by using clould-native software.Preparing for growth also means investing in software that will help the treasury department keep pace with that growth, which older, clunkier TMS can’t do.
Two Major Trends – Open Banking and Generative AI
Open Banking
Open banking – another name for API-based banking – is a major change that’s occurring. It’s not a fad. Why? Because it has actual use cases. It says you should be able to use your own transaction history to identify trends and build business plans. The Consumer Financial Protection Bureau agrees, which is why they recently began laying the groundwork for full open banking implementation in the US.
Generative AI
Generative AI – another big change that has actual use cases – can be used to navigate software, and perform calculations for you based on its knowledge of the formulas and your data. That’s exactly what we found when we implemented OpenAI’s ChatGPT into our software. When testing it, we could ask it about cash flows over a specific period, and for an exact breakdown across currencies. We even asked it to generate an FBAR report, which it did just about instantly – we’re pretty sure it would take Bill in accounting at least an hour or two
Generative AI isn’t just for helping kids with their homework, it turns out.
No wonder 72% of executives want to implement AI within the next few years. But forward-thinking companies have to do it in a way that helps employees do their jobs better. Make it clear to them that it’s not going to replace them (that buy-in is important!). It’s more like a very powerful assistant, not something that’ll perform every task from now on.
The Final Piece – Scenario Planning
So, all this optimism about the economic outlook. But financial projections are still just that – projections, educated guesses.
What if things don’t change, and the economy keeps plodding along for a while longer? To answer questions like that, you’ll have to look to scenario planning.
Scenario planning is exactly what it sounds like – building plans for all sorts of different possibilities. While you can use it for big changes, like higher inflation or even a recession, you can also use it for little changes – a supply chain delay here, a moderate increase in headcount there, or lower than expected sales. By virtually stress-testing your business, it uncovers its main vulnerabilities so you can be proactive rather than reactive.
How Tech Makes Scenario Planning Easier
Scenario planning is usually a difficult process. That’s because there are so many different pieces – you have to gather all the relevant data from each bank portal (how do you isolate the relevant data?), then transform it into actionable insights. Automation and tags make the process much easier. You can create user-defined variables and growth rates so you can quickly build models based on specific possibilities, which are then applied to your historical baseline.
Even if things don’t change, visibility will help you protect the cash you have and be better prepared to respond to adverse conditions. It’s all about the ability to strategize, which is useful whether you’re on offense or defense.
Focus on the Fundamentals
As the economy recovers, investing in technology will be a top priority. But that investment has to be targeted – invest in technology that will have the most impact, tech that proves itself cost-effective by saving and earning money. To us, that means looking at the fundamentals – your cash position and future cash flows – then strategizing from there.
Look for software that brings the latest innovations – APIs, cloud computing, and generative AI – all together. Find technology you can use for free, so you can see how these developments protect you against risk and boost your bottom line without breaking the bank.
Don’t get left behind as competitors begin planning for growth – request a demo today!
