Many companies are often too small for a dedicated treasury management function and as a result that function often falls to the most senior finance person in the region. Due to the small size of operations, at least from a bank’s viewpoint, there is also often no single global banking relationship, nor is their access to account roll up and offset facilities for cash management purposes. There is therefore additional complexity to grapple with to obtain an overview of actual current cash positions that must be reconciled to the expected theoretical cash flows generated in the accounting records.
Whereas your bank accounts reflect the cash position at the end of the day with absolute balances accessible through internet banking or SWIFT at any one time, the same is certainly not true for your accounting records, meaning that cash flow forecasts are tricky and time consuming to build, as timing issues need to be handled. Moreover, corporate HQ’s are interested in regional and global pictures ensuring that entities at different stages of their growth have just the right amount of cash to sustain business operations. They must be able to meet their obligations of payroll, monthly expenses and tax bills, with excess cash being parked or delivered to where it is needed without attracting additional taxes.
In order to get focus and clarity on cash flow, forecasts & budgets are painstakingly put together with a myriad of assumptions and effort is taken to pinpoint large movement items, as well as to understand the effects of the underlying trends. Sensitivity analysis is undertaken for key line items but not everything can be planned, with shock moments due to sudden FX movements, or clients going bankrupt, being examples of unplanned events. When these originate a quick reckoning on possible exposure is needed, followed by appropriate actions for risk mitigation, as well as re-forecast updates.
Rather than cash forecasting just being a time consuming, but necessary task, today’s technologies allow for significant value, in terms of repeatability and auditability making it possible for cash flow reconciliations to be performed on a more regular basis. Although this possibility has not been missed by finance, the key issue has been to resolve those troublesome tasks that delay cash related processes. These tasks are normally labor intensive with an anecdotal 80% of time on the process and 20% on management review and of course many have cash flow implications that may or not have been incorporated into the budget or forecast. As cash flow forecasting is a painful and detailed process, which is dependent on many parties, often forecasts are based on non current information and therefore, although a guide, are subject to error.
Now new solutions are available that tackle these difficult processes to “One Button” to get relevant information onto “One Page” but which also give the end user total granular control. The processes focus on three areas; the presence of a High Performance Compute Engine; Process Flow; and Reporting & Visualization with the ability to run “Business Simulations” and “Contextual Actionable Alerts”. Tasks can be run together or individually depending on segregation of duties and complexity.
High Performance Compute Engine
Considering both hardware and software this is made possible through :-
Hardware including bandwidth continuing to improve. This includes faster processors with increased cores and threads noting that many software houses still do not yet leverage the powers of cores and threads, as expensive rewrites are often required.
Software combined with new programming skills that 1) are written to leverage the cores and threads of today’s processors 2) have new compression technologies allowing more to be processed simultaneously and 3) which are optimized for management accounting processes. This means, that for like for like scenarios, less program code is written and therefore are smaller in program size. When coupled with the above hardware changes, plus the changes below, they execute more quickly and also benefit from less program errors, as less lines of coding are required to achieve the same output.
Additional points :-
NOSQL databases are optimized for processing and are fast.
The move from 32 Bit to 64 Bit processing enables better performance. In a nutshell 32 Bit applications can only use 4GB RAM but this number is reduced by other hardware demands like graphics cards.
The emerging presence of Cloud with both on-premise and hybrid options for an application and introducing CloudBursts. This is where this segregation can take place within a process, allowing for hardware to be sized and costed for the desired level of processing capability.
The Compute Engine is therefore very fast meaning that results are presented more quickly helping reverse the anecdotal 80% time on process and 20% on management review.
Process Flow Engine
Many spreadsheet applications exist within corporates to fill gaps in cash related processing. Information contained within them may have been combined from various data feeds with the use of one or several more spreadsheets to reach a “view” on a process. New solutions now aim to solve these issues by allowing data to be processed against “One Button” to produce relevant information on “One Page”, irrespective of data source. They have the flexibility to involve best practice that can involve segregation of duty and that can involve the users as required for a particular process review.
These processes can start with a smart form, data feed, or authenticated email, even if they have zipped attachments and can encapsulate all related transformational workflows for the process itself, with the results being available for visualization including “Business Simulations” and “Continual Event Monitoring”. Above all, the entire process is driven by your end users and leveraged with their domain expertise.
Reporting & Visualization
Once the data is processed then reports can be viewed and scenarios played out using “Business Simulations”. Continual contextual alerts / notifications can continually keep you involved, whether it be running a specific report(s) or starting a process.
These work to provide real value for cash flow forecasting. They can receive authenticated email for processing, even with zipped cashflow attachments, and can perform checks to either accept files for processing, reject them or even chase if files have not been received. They can continually monitor all required functions including Complex Event Processing (CEP) to produce contextual actionable alerts which can contain appropriate reporting and details commensurate with the type of identified error. They can be also be run at month end to produce the reports together with rankings of cash receipts and expenses etc. They can calculate investment interest, loan interest etc for further granular controls and alerts and if combined with SWIFT or internet banking ,controls can be taken even further and automation taken to a new level.
What the above achieves for the end user, is the ability to remove bottlenecks or significantly reduce them, and in so doing, moves the organization more towards real-time which means that cash flow forecasts will be based on the most up to date daily or real-time information. Using the same processes, regional / global cash flow forecasts can be put together quickly and results compared with budgets and overdraft limits. Shock movements can be quickly assessed and cash deficits or surpluses handled in an appropriate manner.
Additionally these solutions facilitate proactive not reactive risk management by allowing you to look behind the numbers :-
At regional or entity level, at all cash payments and receipts ranked by value or customer / supplier.
To review high value debtors by Daily Sales Outstanding (DSO) or receive alerts for settlement of same.
To compare highs and lows in cash forecasts to identify surplus or deficits in cash flows or potential breach of banking covenants..
To look at cash flow mix optimization through ranked “Business Simulations”.
To review and scrutinize cash flows within an entity for frequency and type of payments.
Document Management Systems (DMS) facilitate processes and reporting and where relevant allows you to access and search underlying documents for key information. Systems can be workflow based or can operate in parallel giving you the ability to refer to source documentation.
Lastly, as budgets can be assembled using the same technologies, this leads to a higher degree of granularity and accuracy which, in itself, enables cash flows to be built with more confidence, at or near real time. “Business Simulations” can be used to assess differing scenarios and “Continual Monitoring” can provide you with greater predictive controls over your business to improve the underlying performance of cash management. A major step in the right direction!