Updated – June 9th, 2023
Cash management solutions. When you read this term, you probably think of expensive, bulky software that takes months to implement. Sure, it may be super useful in managing your finances, but is it worth all the stress and money?
Fortunately, you don’t have to answer that question – we’re in a new era of cash management!
These days, cash management solutions are within reach for companies of all sizes – there’s no need to break the bank to manage your banks and bank data. These agile programs can be implemented rapidly and, thanks to new technologies like open banking APIs, automation, and cloud-based functionality.
It’s sort of like upgrading from an old flip phone to a high-tech smartphone, but without the hefty price tag. Before we get into all that, though, let’s look at why you should be using cash management solutions.
Liquidity Management – Your Number One Priority
Successfully managing liquidity is the most important thing you can do for your business, helping you afford operating expenses and short-term obligations. Simply put, a solid liquidity management plan ensures you don’t run out of cash – the reason 38% of startups fail.
More than that, though, liquidity management helps maintain a strong financial foundation to support long-term growth, allowing you to take advantage of opportunities as they arise.
Cash management solutions provide a strong basis for a successful liquidity management plan, helping organizations improve cash visibility, position funds they do have in the right places, optimize cash flow, and prepare for contingencies.
Let’s take a brief look at each.
Cash Positioning and Money Movement
Cash position is the amount of liquidity your business has at a given time. Determining your cash position is vital, but it isn’t always as easy as it sounds – actually, many businesses have trouble with it.
That’s probably because the only way to determine cash position – when relying on spreadsheets, at least – is to find your previous closing balance then add up all transactions that have occurred between then and now. If you have a large, multinational business, this can be just about impossible.
But even if your business isn’t massive, by the time you do determine your cash position it’ll automatically be out of date. Automation in modern cash flow solutions gets around this problem by recording transactions as they occur and updating your cash position in real-time, allowing you to make informed financial decisions and react quickly to changing circumstances.
Speaking of acting quickly, what if you need to move money around? Let’s say you realize an account you’re using to pay a vendor is short on funds, and the transaction is supposed to take place tomorrow. Luckily, you notice another account has a surplus.
Modern cash management solutions not only enable you to see the balance of each account from one, centralized location, but also to move money from one account to another. So, they not only help you determine your cash position, but also to position cash as needed.
Optimizing Cash Flow
Cash flow is the money that comes into and flows out of your business. While your company may be generating a profit, you certainly won’t have all that revenue on hand at one time. Cash management solutions help you understand the rhythm of your inflows and outflows so you can line them up and avoid awkward situations – an inability to afford loan payments or pay salaries, for instance.
Cash flow forecasting is a method of projecting future cash flows based on a combination of historical data and anticipated future trends. When prepared correctly, cash flow forecasts act as a cheat sheet that guides your current and future decision-making.
For instance, if you see expanding now is going to hinder your ability to pay debts a few months down the line, you’ll know to delay that expansion. Alternatively, you may see that you’re in a good position to launch a new project. It’s like having a crystal ball to peek into the future of your finances.
Preparing for Scenarios
Scenario planning is another way to ensure you avoid liquidity shortfalls. This involves hypothesizing different situations like a sudden, sharp decrease in revenue, or even a positive change like a successful expansion into a new market and the accompanying increase in cash flow. How would your business react to these situations in a way that ensures solvency and potentially, growth?
Typically a very difficult process, scenario planning is something that’s made much easier with the right cash management solutions. With user-defined variables in Trovata, for instance you can see the effects certain events would have on your business – say, disruption of a specific supply chain. From there, you can develop a contingency plan.
What To Look For in Cash Management Solutions
Now that you know why you need cash management solutions, let’s take a look at what you want to be included in the software you choose.
Automation solves plenty of problems.
For example – as great as our treasury team members are, there’s a lot of data that needs to be recorded. The more information treasurer’s record, the more likely they are to make errors. In fact, according to IBM, 88% of all spreadsheets contain at least one error. The phrase “garbage in, garbage out” comes to mind – flawed data leads to flawed decision making and hours wasted on reconciliation.
With automation, you don’t need to worry about errors as every transaction is recorded as it occurs.
How long does your finance team spend on reconciling bank data each month? This is a tedious, time-consuming task that distracts from more value-added activities. It’s necessary, though, and that’s where automation comes in! Automation streamlines the reconciliation process, saving your team valuable time and effort that can be redirected towards strategic initiatives.
When treasury teams aren’t spending hours each week recording and reconciling data, they’re freed up to actually devise actions based on the data in front of them – the finance function becomes a versatile, dynamic force rather than an inertial cost center.
Case in point: a study from the Strategic Treasurer showed that over a third of those surveyed neglected financial risk management, relationship management, and fraud monitoring. Why would they neglect these critical functions? They didn’t have enough time!
Bank Data Aggregation and Analysis
Through APIs – application programming interfaces – modern cash management solutions are able to communicate directly with your bank(s), so that transaction information is recorded in real-time. Data’s aggregated without any input from your treasury team, who can refer to it as needed to make quick, informed decisions.
Since information is centralized and updated in real-time, there’s also no issue of trying to figure out which spreadsheet is the most current.
But it’s not just about collecting the data – it’s about analyzing it. Without analysis, you just have a huge mountain in front of you. Cash management solutions help you climb Mt. Everest and provide a huge, business intelligence advantage through strenuous, automated analysis that transforms the data into actionable advice.
There’s nothing more important than your data security. When software is dealing with your most sensitive financial information, you need to know you can trust the providers. Multi-factor authentication is the most basic security feature – if a service doesn’t offer multi-factor authentication at the very least, it’s time to look elsewhere!
Advanced encryption techniques ensure that your financial information is securely stored and transmitted, making it nearly impossible for unauthorized individuals to access or decipher your sensitive data.
Working with some of the most well-known banks, Trovata is committed to protecting our clients’ data while ensuring it gives them the massive advantage they deserve.
When a cash management solutions provider describes their software as being cloud-based, it sounds pretty fancy, no?
And that association isn’t wrong – cloud computing comes with a lot of benefits for companies like cost savings and improved security.
The issue is that a lot of software that claims to be “cloud-based” hasn’t been designed specifically for the cloud, meaning it can’t take full advantage of cloud capabilities.
Actually, any software that predates 2015 – the year cloud service companies started allowing vendors to develop SaaS “in the cloud” – is not going to be cloud-native.
So, in your search for cash management solutions, look for cloud-native software!
One benefit of cloud-native over “cloud-based” is superior scalability – required resources are scaled up or down based on demand. This translates to cost savings, as organizations only have to pay for the resources they consume.
Efficient resource utilization in cloud-native environments also unlocks the potential for advanced technologies such as artificial intelligence (AI) and machine learning (ML). The increased processing power available in the cloud enables innovative functionalities like robotic process automation (RPA), which can greatly streamline operations and enhance efficiency.
To further demystify “the cloud,” catch this Fintech Corner episode where Trovata CEO, Brett Turner, and CPO, Joseph Drambarean, explain how to spot “cloud” software imposters and why it matters for your bottom line:
Rapid Implementation Time
In the past, cash management solutions would take months to implement, and require heavy IT involvement. These days, an automated cash management platform can be implemented company-wide in less than seven weeks, without tying up IT resources that may be needed elsewhere.
Some tools require no IT involvement to install, like Trovata. With the power of APIs, CrowdStrike was able to connect one of their bank accounts to Trovata almost instantly.
Let’s be honest – it’s annoying when your cash management solutions don’t integrate seamlessly with your ERPs. If they can’t, you won’t have a complete picture of your company’s financial situation. For a modern cash solution, the cash management system needs to be able to integrate with your ERPs like Sage so that you can view accounts receivables and payables.
You Need a Solution – A Cash Management Solution
At the end of the day, Excel can work. But does it work well? Does it work efficiently? Will it ever allow you to manage liquidity in real-time? Sadly, the answer is no.
As other businesses are adopting powerful cash management solutions, and get quick access to those massive amounts of data, you’ll find your company is being left far behind.
One of the fundamental pillars of a successful business is making the right decisions, and these decisions should be based on accurate and timely data. Recognizing the significance of data in driving business success, it becomes crucial to have instant access to reliable and error-free data across your bank accounts.
There’s never a better time than the present to get started – leave spreadsheets behind and leverage the power of a modern, cash management solution like Trovata.
Request a demo to see what Trovata can do for you.