Cash & Liquidity ManagementCash ManagementCash ForecastingWhy You Should Want to Invest in Liquidity Management

Why You Should Want to Invest in Liquidity Management

Leading companies are investing heavily in the development of liquidity management, which has become an international trend. Such projects are activated by stringent general efficiency requirements and centralised financing functions. Rapid change management after restructuring also begins with money: cash flow information must be acquired even when other operations are merged at a slower pace.

Companies are also seeking a feel for market conditions: liquidity management is always a focus during recessions. In particular, companies investigate the means of improving cash flow monitoring and forecasting. Many European companies still use manual spreadsheets for cash forecasting, leaving room for enormous development opportunities.

In a typical situation, subsidiaries manually collect and enter data into spreadsheets, which are then sent to the group financing department. There, the data will be manually compiled into group-level cash forecasts. Even if a large group of people perform extra work, forecasts remain imprecise and errors occur. In response, new solution models arise that could strengthen operations.

Technology is Merely an Excuse

Many ERP systems aim at handling cash management through resource planning. However, those constructed with an emphasis on production constitute inflexible cash management tools. In addition, groups usually employ several independent ERP systems, which are difficult to integrate with each other and whose usability does not necessarily support treasury work.

According to a gtnews survey published in 2007, Is Corporate Cash Management Changing?, treasury professionals regard difficulties in system integration as the main obstacle to liquidity management development. However, no project should fail because of that. Approved tools and tested procedures exist for the construction of a systematic integration of group companies’ financial management, ERP and bank systems. All data relevant to the development of liquidity management will already be in the company’s systems but, instead of manual labour, functional integration systems are required to make use of such data.

Deciding That Data is Reliable

According to the gtnews survey, liquidity management development is also hampered by a lack of trust. Information emanating from the systems is believed to be incorrect because it is ‘known’ to be incorrect. Why is cash flow information unreliable? Can it be made reliable? The answer to this is yes, it can. If anything, this is a question of objectives: a company can create an operational culture and regulations that, if followed, provide extensive data.

It is common, for example, for experience-based know-how and a feel for things to rest on the shoulders of a single expert in a company. He or she understands the logic of the related industries, the procedures of companies in the group, and the practices of co-operation partners. But such a situation also constitutes key person risk. When a system is reliable, it makes no difference what individual people know. Enough up-to-date basic data can always be acquired for analysis. However, this requires that, in constructing the system, the work be done well from the beginning: data based on the company’s procedures and the experience of its experts must be unravelled, and rules created and documented. Thus, a solution that produces correct data is constructed.

Can You Really Afford This?

If cash forecasts are performed manually, using a spreadsheet, a group seldom has time left for analysis, or for checking whether the forecasts are correct. There is no opportunity to provide or receive feedback, thanks cannot be conveyed and development suggestions cannot be made. There is also no possibility for growth for the experts involved, for sharing of responsibility, or for systematic development of cash management. How many companies can afford such a situation?

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