5 Treasury Management Solutions to Improve Cash Flow Efficiency

Key takeaways:

• Aligning treasury management solutions with business operations can lead to more integrated data, forecasting and cash flow management.
• Centralizing data and analyzing it in real time is the first step in more efficient cash management throughout an organization.
• Fully automating treasury functions saves on labor, reduces errors and provides financial data invaluable to operational and strategic planning.

How treasury management is integral to overall strategy

Forward-thinking companies are increasingly leveraging treasury management services  to go beyond basic transactions, such as accounts receivable and investments. By prioritizing cash flow optimization, businesses can improve financial efficiency, support long-term growth, and strengthen risk management.

"Companies performing at their best tend to consider treasury as a strategic function that can help the organization respond faster to market conditions," says Brandi Craig, treasury management sales director at Fifth Third Bank. "What a company does with a day’s worth of cash can be very impactful on the business overall."

Treasury is a secret competitive weapon

The following five practices build on each other to help business owners, treasury managers, and finance executives strengthen business cash flow management, improve operational efficiency, and achieve long-term financial and profitability goals:

1. Aim for real-time cash flow visibility. In an ideal world, every company would have a clear, centralized view of cash inflows and outflows across departments in real time. "Effective treasury management starts with centralization," says Craig. Many companies have multiple banks and different accounts payable and accounts receivable platforms that don’t talk to each other, as well as various financial systems inherited from mergers and acquisitions that don’t work together. "Businesses have plenty of data, but it’s not necessarily in one place, and it doesn’t necessarily reflect the current status," says Craig.
   
   One method a company can use to centralize data is to establish virtual accounts that create a consolidated view of cash, allowing the firm to access such granular data as payments by business units.
2. Adopt intentional liquidity strategies. Effective companies don’t just ask themselves how much cash is on hand; they try to ensure that cash is directed to the right place at the right time. When managers think about liquidity strategically, they can find a balance among operating cash, contingency reserves and growth capital. This hinges on good data. When you have real-time cash visibility that is data-driven, you can better decide where to put cash.
   
   Companies should allocate cash into three buckets—operating cash, short-term excess liquidity and long-term cash, Craig explains. Once these buckets are established, you can strategically move cash to the place the data tells you is most pressing. For example, is there an immediate operational need? Or a debt obligation that must be taken care of? Or an investment opportunity that could add to profitability?
   
   Thinking about liquidity well beyond the idea of excess cash helps companies avoid both hoarding cash and running out of it. Bottom line: By doing this, companies can reduce borrowing costs and rely on more predictable funding for operations and growth.
   
   
3. Use precision forecasting to drive decision-making. When centralized data and intentional liquidity strategies are in place, that opens the door for the kind of cash flow and finance forecasting that can give businesses a competitive edge. Precision forecasting—predictions that move beyond historical analysis to look at current operations and future profitability—can improve a firm’s negotiating power, capital management abilities and risk management procedures. It also helps managers feel more confident about strategic planning.
   
   Craig says short- and medium-term cash flow forecasting that is informed by real-time operational data can be more effective than forecasting based on finances alone. Changing this mindset shifts treasury’s role from simply reporting historical data to shaping current and future outcomes. Managers can determine what they should do with excess cash based on what inventory looks like, what sales are coming in and the current debt picture. "Using these real-time leading indicators is a key part of precision forecasting," she adds.
   
   
4. Automate treasury functions. Shifting from manual treasury processes to automated workflows, often with the help of artificial intelligence and machine learning, can help dramatically boost your firm’s competitive advantage, especially in today’s tight labor environment. Technology is the key to unlocking the first three treasury management solutions at scale. It can help standardize finance procedures throughout the organization and help eliminate duplicate efforts and errors, providing an immediate cost savings for the organization.
   
   "Many companies still use spreadsheets to position their cash," says Craig. "That’s a lot of human hours that could be put to better use. When you automate, you reduce the amount of time and energy that goes into cash management and you reduce the amount of human error."
   
   
5. Establish cross-functional treasury reviews. In nearly every organization, there’s inherent tension between finance and operations, especially when finance is tasked with asking probing questions. "It may seem like they are there to impose restrictions," Craig says. There can be resistance to working together even when companies know treasury automation, data visibility and precise forecasting can help promote future growth. When treasury is a strategic partner in C-suite deliberations, treasury managers can work to better understand operations, sales, procurement and overall strategic goals and then suggest the most effective cash management strategies. At the same time, operations managers need to keep an open mind and include treasury’s role as they run their businesses.

Put real-time insights to work

Armed with real-time information, managers throughout the company can make faster, better decisions, whether they are navigating volatility or funding future growth. Businesses that implement these five steps to help integrate treasury throughout the company are likely to discover an invaluable strategic partner that gives them a competitive edge.

To learn more about effective treasury management tools and strategies, find a relationship manager.