Cash Management Automation: Tips and Best Practices

Cash management includes the processes and strategies a business uses to optimize its cash flow and cash positions. The goal with cash management is to have enough cash to meet obligations and at the same time make the most of any remaining cash. The goal with cash management automation is the same–it’s just that automation provides a much more efficient way of achieving that objective.

In this blog, we’ll offer some tips and best practices to follow when you’re preparing to automate your cash management process.  But before diving in, let’s review some cash management basics and the challenges of trying to manage cash effectively with traditional manual methods.

What Makes Up Cash Management?

The stability and financial health of a business depends on effective cash management. When cash inflows and outflows are managed proactively and effectively, a business is positioned to have not only enough liquidity to meet operational obligations, but enough cash to fund strategic goals. Daily cash positioning leads to better decision making about the allocation of resources. Knowing your cash balances and forecasting cash flows helps you avoid shortages and gives you the confidence to invest or expand accordingly.

Effective cash management includes:

Cash positioning–Keeping track of your daily cash inflows and outflows in such a way that you can know your current cash balances as well as any excesses or shortages in the future is a key component of cash management. Monitoring your cash positions allows you to make wise investing and borrowing decisions. 

Account reconciliations–It’s important to reconcile your internal records with bank statements regularly so any discrepancies are caught early. The same holds true for reconciling customer accounts as payments come in. 

Cash flow forecasts–These tools give you visibility into future cash positions–whether that be a surplus or a shortage–so you can plan ahead. This includes both short-term and long-term forecasts.

Managing risk–Interest rate changes, fraud and foreign exchange rates can affect cash flows. This critical component of cash management is often overlooked, but attention to it adds stability to your cash management.

All of the above elements of cash management are improved in terms of efficiency, accuracy and usefulness with AI-powered automation. Automation enables you to easily monitor cash positions. Instead of having to gather financial data from disparate sources, the information you need is all in one place and in real-time. Automating the reconciliation process reduces errors and ensures that cash balances are up to date. Forecasting is more accurate, and therefore more useful, because it’s based on real-time data. And risk management is taken into consideration as well. 

The Problems with Traditional Cash Management

The traditional method of managing cash involves manual tasks, decentralized information and depends on inefficient spreadsheets. The result is a time-consuming process that’s error-prone because it relies heavily on human input and intervention. 

Inefficient process: Manual completion of tasks such as cash positioning, account reconciliations, forecasting and reporting demands the bulk of a finance team’s time. That means that you’re paying finance professionals for data entry and other mundane tasks instead of letting them use their talents and skills for more valuable initiatives.

Spreadsheet insufficiencies: When it comes to complex banking issues and multi-currency and multi-entity transactions, Excel spreadsheets are limited.They can’t provide real-time data, are prone to errors and are unable to send alerts.

Data that’s not up to date: It’s extremely difficult for manual processes to provide real-time data if you’re managing multiple accounts. Reconciliations would have to be daily and forecasts would need to be done frequently. Small teams are busy and cannot keep up with all the tasks necessary to provide real-time data.

Disjointed view: When cash management tasks are not centralized, there’s a lack of understanding of the cash flow cycle. Without a holistic, complete view, it can be a struggle to optimize and take advantage of opportunities.

Lack of transparency and accuracy: With spreadsheets as the basis for reporting, it’s hard to achieve the level of transparency and accuracy you need. This can impair decision making.

As you can see, traditional cash management has its challenges. And businesses who are still managing cash without the help of automation are often reactive and at a competitive disadvantage. On the other hand, businesses who have embraced advanced technologies see significant improvements with regards to efficiency, accuracy, visibility and overall financial performance.

A Process for Finding the Right Cash Management Automation

Although a quick search will bring up pages of cash management solutions, you should do more than simply investigate the hits on page one. A smarter strategy is to follow a process. The steps in the process will guide your search and keep you from wasting time on solutions that won’t help you achieve your goals.

1. Pinpoint your business goals. Your first step is to define exactly what it is that you want to achieve through cash management automation. Of course, you want all the benefits that automation promises, but there are probably some hot buttons in your organization. Is increasing accuracy more important than reducing costs? Or do you desire increased visibility above all else?
   
   
2. Take stock of your current processes. Next you need to analyze your current cash management processes, looking especially at areas that correlate with your business goals. For example, if improved forecasting was identified as a major goal, then start by evaluating your forecasting process. But make sure to include all areas in your analysis–you may find additional pain points to add to Step 1.
   
   
3. Name key stakeholders. Who should be involved in each phase of your research? Think about all the groups who could be impacted or need to weigh in on your choice of a cash management solution–this includes the finance team, IT, leadership or other relevant stakeholders.
   
   
4. Identify functional requirements. Using what you’ve discovered up to this point, list out the specific capabilities and features you think you need. This list could include things such as seamless integration with other systems in use; the ability to handle multi-currencies; specialized reporting, etc.
   
   
5. Define technical requirements. Similar to functional requirements, the technical requirements you need should be taken into consideration: security, specifications, hardware and software.
   
   
6. Compare vendors. Again, using the information you’ve gathered, you should be able to come up with a short list of cash management automation solutions. Consider sending each vendor the same set of questions regarding the solution’s features, pricing, functionality and ongoing support. You can even create a scorecard that aligns with your questions to help in your evaluation.
   
   After the initial evaluation, you will want to set up a demo to see the solution in action and get a feel for this potential partner. During the demo check out how intuitive the solution is, how user-friendly it is, its functionality and scalability. 
   
   
7.  Make a choice. Select the provider who matches best practices with your specific requirements and one you think you'll enjoy working with.
   
   
8. Implementation and testing. The final step is implementation and testing which involves tasks you'll be responsible for and others that your chosen provider will oversee.

Follow this 8-step process and you should be well set to start experiencing the improved efficiency, accuracy, visibility that cash management automation provides.

The Best Fit for You in Cash Management Automation

One feature you should consider including in your list of must-haves–no matter what your business goals are–is whether the solution uses advanced technologies like artificial intelligence (AI) and machine learning (ML). Solutions that rely on the power of these technologies provide much more than streamlined cash management. Using historical data, they can predict payments and identify high risk accounts to give you more accurate forecasting. And because all your financial data is one place, you will have enhanced visibility into cash positions in real time.

Cash management automation is transforming the way businesses operate. Solutions that are powered by AI not only streamline processes and enhance efficiency, they provide more accurate reporting and forecasting to give you the most up to date insights possible.

Payference is an all-in-one cash management platform powered by AI. It was built especially for small to mid-market size businesses that desire automation with advanced capabilities but none of the extra features they wouldn’t use–or care to pay for. To learn more about how one biotechnology company transformed its cash management with Payference, read this case study.

And to see for yourself how Payference can help transform your business, why not schedule a demo today?