Business Resilience Demands A Strong Cash Culture – Does Yours Stack Up?

Written by Kalei White
July 18, 2023

We’re living in uncertain, dare I say it, crazy times that demand companies become more robust and prepared for any scenario that could arise. We’ve learned this all too well since COVID-19. A cash culture can help.

But, what do I mean exactly by a “cash culture?” 

A company with a cash culture or a cash management-focused culture considers the impact on operating cash flow in every business decision.

Cash culture emphasizes paying attention to cash beyond accounting activities, monitoring and controlling cash flows to ensure stable growth and hedge against risk. It’s about looking forward and planning for multiple scenarios, finding the best ways to strengthen a company’s financials no matter how the future unfolds. 

In this post, we’ll cover the benefits of a cash culture and actionable tips to help you foster it in your business.

Why is a Cash-Focused Corporate Culture So Important?

Once you instill a strong cash culture, your business gains more flexibility when demand for liquidity arises, and it depends less on expensive external capital sources.

A recent analysis by Ernst &Young of 5,000 of the largest global companies found that:

  • Companies with better cash management were 19% more resilient than their low-performing peers. 
  • Leaders in cash management were 25% better at mitigating initial shocks due to having additional liquidity as a buffer to impacted operations. 
  • Companies with solid cash management were 21% more likely to prevent a downturn in the first place.

However, building such a culture doesn’t happen overnight. Here are some of the most essential actions you can take to foster a strong cash culture.

How to Build a Cash Culture In Your Business

Building a solid cash management-focused culture starts with your finance team and spreads throughout the entire organization.

Review Your Finance Processes and Policies

Make sure to take a proactive approach regarding the following:

  • Having a structured internal system to access data
  • Analyzing the accuracy and speed of the data
  • Mitigating risk and compliance
  • Funding/capital structure 
  • FP&A 
  • Relationship management with banking partners

Involve Treasury in Planning and Forecasting

To build an influential cash management culture, the treasury department must play an active role in planning and forecasting. They should leverage advanced tools like Trovata with its open banking APIs, AI, and cloud-native technology to accurately forecast cash flows based on real-time data from various sources across the organization.

This approach provides visibility into the current financial status and helps anticipate future needs or challenges well ahead of time. The ability to plan effectively for different scenarios contributes significantly to fostering a robust cash management culture within the company.

Encourage Cash-Consciousness Across All Departments 

Cash flow is a necessity for any organization’s success. All business units must understand its importance and work towards improving it. This involves focusing on strategies like optimizing receivables and payables, managing inventory efficiently, and controlling overhead costs.

This responsibility goes beyond the finance team in a company with a good cash culture. Ask department heads to negotiate when purchasing software, aiming to balance quality and cost while seeking less capital-intensive ways to reach their goals. 

For example, if your marketing team spends a lot of money on advertising, ask if it could reduce spending on the ad campaigns with a lower ROI and invest some of that spending in organic channels to reduce customer acquisition costs (CAC). 

Tips to Strengthen and Improve Bank Relationships

Fostering a solid cash management culture in corporate finance can significantly enhance your company’s relationship with banking partners and vice versa. A robust cash culture improves financial health and positions your business favorably during negotiations with banks.

Understand Your All-In Costs With Banks

The costs associated with banking services often go unnoticed or misunderstood by many companies. Fees associated with transactions, upkeep of accounts, etc., can accumulate over time without being noticed or comprehended.

Understanding your all-in costs with banks is crucial, as this knowledge will help you negotiate better terms and potentially save substantial amounts in the long run.

Choose a Bank That Embraces APIs

An often overlooked “hidden cost” to be aware of? Whether or not your banking partner embraces open banking, providing robust APIs for things like balances, transactions, and payments to help you take control of your financial data. 

Especially now, since companies are looking to mitigate liquidity risk by working with multiple banking partners, being able to extract your data, normalize, and consolidate it automatically is a game changer. The key to making multi-bank cash management less burdensome is using a cash management solution that utilizes bank API connectivity. 

If not, you’re stuck with inferior methods of connecting to your bank data, like a legacy TMS that connects with brittle, outdated technology or logging into bank portals and downloading bank statements to crunch the numbers in a spreadsheet. 

For example, PNC Bank, JP Morgan, Wells Fargo, NAB, and Capital One, are all examples of banks that have embraced digital transformation, with lightning-fast APIs to serve better the treasury departments that bank with them. 

Recommended: Take Control of Your Financial Data with an API-Powered Bank Feed

Know Your Bank’s Customer Targets

Banks have specific customer targets that they aim to serve optimally. Understanding these targets is crucial for businesses as it helps align their needs with what the bank offers best. 

Some banks specialize in providing services to big companies, while others are more geared toward smaller businesses. If you know your bank’s target customers, you can better position yourself as an ideal client and negotiate favorable terms.

Review Price Performance Profiles Regularly

Another good practice for improving your cash management culture is regularly reviewing price 

performance profiles offered by your banking partners. This involves assessing whether the pricing structure provided by the bank matches its service level commitments.

Remember, a strong partnership with your bank doesn’t happen overnight. It requires constant effort and adjustment from both sides. You can create a mutually beneficial relationship over time with adequate attention and the right resources.

Track Metrics Other Than EBITDA for Better Cash Management

Roughly speaking, utilizing EBITDA as the sole measure for cash management isn’t sufficient. While it’s a crucial financial indicator, there are other metrics that companies should consider to foster a healthy cash culture.

Pay Attention to The Cash-Conversion Cycle

Reward your team for effectively reducing your business’ cash conversion cycle (CCC). Completing the cycle in fewer days means more operating cash flow faster

and less need for external and expensive borrowing.

Reward Free Cash Flow Performance

One strategy is to reward business units based on their free cash flow (FCF) performance. This encourages them to not only generate profits but also manage their working capital effectively. By linking bonuses or incentives with free cash flow, you’re fostering a culture that values the efficient use and management of resources.

Use the Day’s-Cash-On-Hand Metric

Another metric to consider is the day’s-cash-on-hand ratio which measures how many days your company can operate using its available cash balance alone. A higher value means more liquidity, which provides greater flexibility in decision-making and risk-taking activities. 

Understanding this ratio can provide valuable insights into your organization’s ability to meet short-term obligations without relying on external financing.

For more ways to measure performance, check out our article, 12 Finance Team KPIs Every CFO Should Know.  

The Bottom Line

A cash management culture is crucial for any business to ensure adequate cash flow and a strong relationship with banks, creating greater business resilience amid uncertainty. 

The main takeaways?

  • Create a cash-conscious culture where all teams are mindful of operating cash flow. 
  • Involve treasury in forecasting and planning. 
  • Understand all-in costs with banks to avoid bad cash management.
  • Set up an API bank feed to make multi-bank cash management less tedious, thanks to automation – this is why we made Trovata.
  • Reward free cash flow performance and track progress using the day’s-cash-on-hand metric.
  • Create cash-forward bank relationship policies.

Ready to better position your company to bring its cash management culture to the next level?  Book a demo of Trovata today!

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