Insight & Analysis

Cash management: still siloed and outdated as economic challenges bite

Published: Mar 2022

A white paper by the IDC finds real-time cash and liquidity visibility is still an issue for many corporates.

Person walking into the foggy woods with not much visibility

A recent IDC white paper which explores the state of liquidity and cash levels at over 800 global corporates finds an outdated and siloed approach to cash management that was put to the test by Covid-19 disruption. The survey, conducted by the market intelligence group and commissioned by Kyriba, also reveals finance and treasury teams struggling in today’s climate of interest rate and inflation spikes, and supply chain disruption.

The research found that 75% of corporate finance executives are still unable to generate 100% cross-functional visibility in real-time of their cash, or forecast cash more than four weeks ahead. Mission-critical decision-informing insights remain pigeon-holed within siloed workflow and outmoded systems, and real-time insight generation and actionability remains beyond the reach of most corporate finance teams.

Many financial leaders struggle to gather the data needed to effectively extract the key metrics for the executive teams and board members. A major part of this issue is the relative lack of real-time access to liquidity data. The survey shows that less than 30% of treasurers can leverage treasury insights in real time.

Revenue leakage

The report also found treasury struggling to manage revenue leakage, including fraud and payment optimisation. Given the current environment of uncertainty, financial leaders are doubling their focus on areas of revenue leakage including bank fees, changes and fraud management issues. Only 42% of leaders would characterise their ability to protect their cash and liquidity against fraud as very effective. Given the average company will experience five to ten fraud incidents per year, the impact on liquidity and cash is immense. Fraud is not the only source of revenue leakage, according to the survey. The reduction of transaction costs and fees paid to third-party payment providers was among the top five priorities for treasurers seeking to improve their ability to move cash and liquidity.

Only one in eight companies has extensive visibility into the company’s current cash positions – that is a real-time view of more than 90% of cash. Less than 5% of organisations can reliably forecast cash beyond three months, with most companies being able to only reliably forecast their company’s cash position out to four weeks.

Further, less than 20% of organisations can forecast their company’s liquidity beyond one month. Only half (51%) of the businesses were able to build a consolidated view of their cash and liquidity within the same day of the request. In addition to being able to forecast and reforecast quickly and efficiently, financial leaders found that they desperately needed the ability to simulate future what-if scenarios and to create plans based on those what-if scenarios.

The benefit of this capability is that business leaders can remain in lockstep around core business objectives even as the business environment changes rapidly. Unfortunately, many financial leaders don’t have the tools to support scenario planning for liquidity, and as such, they must cope with limited visibility for decision making. CFOs with limited visibility are slower to make decisions regarding money movement, internal funding of projects, or M&A activity. Furthermore, a lack of visibility can even impact the bottom line as companies may choose to be less aggressive in moving money into/out of the exchange markets and may opt for expensive external funding sources unnecessarily.

Elsewhere, the survey found that more and more organisations are coming to the realisation that liquidity management is not only a critical aspect of functioning in this “new normal” but also a team sport. Organisations must have a unified approach to all data, processes, and human capital related to liquidity management.

The report states that the CFO’s role has evolved into a strategic business partner for the rest of the organisation, and the capability that’s required to deliver actionable intelligence downstream to the decision makers at the edge of the business or the lines-of-business leaders, is evolving as well. The pandemic has demonstrated that, faced with a crisis bigger in many ways than the 2008 financial crisis, CFOs and treasurers have had to shift from managing long-term strategic initiatives of the business to ensuring immediate access to cash to fund basic business operations and knowing how long they can last without additional income. Thus, knowing how much liquidity they command is now a necessity, not a luxury.

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