Cash flow visibility is the most important criteria for enterprises to gain a solid understanding of their financial situation. Obviously, having a positive cash flow puts organizations in a position to grow, and to drive cash management into revenue streams that fuel investment and increase profitability.
What exactly is cash flow?
Cash flow is the total amount of money coming into and out of a business. Changes in the flow of cash usually result from operating, financing and investing activities, although operating activities can often have the largest impact.
Examples Inflows and Outflows
Operating activities
- Inflows: money received from clients
- Outflows: money paid to cover rent, utilities, travel, cell phone and other expenses
External financing
- Inflows: cash received from a bank loan
- Outflows: monthly loan repayments
Investing activities
- Inflows: money received from selling assets like equipment
- Outflows: money paid to purchase equipment
What is cash flow visibility?
If there is a clear, single point of visibility into all money going into and out of their accounts, corporate treasurers are in the right place to make informed financial decisions. They can plan ahead, with detailed cash flow forecasting, historical data and real time visibility into liquidity. This gives treasury management the power to pinpoint potential scenarios when available sources of credit wouldn't be available to cover cash shortages. Alternatively, liquidity forecasting can pinpoint times of excess liquid assets, which could potentially be used for other initiatives.
Being able to accurately forecast cash in both the immediate and long term depends on the gathering of accurate data, both historical and in real time - and the successful integration of this data, systems, people and business processes.
What are the reasons for poor cash flow?
The reasons for poor cash flow can be many and varied. One reason is banks or financial institutions not agreeing to lending quickly enough. Another factor, and probably the most common reason for negative cash flows is a failure by treasury management to strictly control spending, and not developing and adhering to accurate cash flow forecasting.
What are the barriers to cash flow visibility?
Many businesses struggle to test scenarios, or gather strategic cash flow insights from which they can produce valuable analytics. This could be due to inflexible legacy software, data silos, and insufficient means to drill down to the transactional level of their data. If you can't see what's happening to your cash in the here-and-now, your organization is in a less than optimal position to effectively control cash flow.
Cash flow statements vs cash flow analytics
Cash flow statements show historical data, or data regarding all cash inflows a company receives from its ongoing operations and external investment sources. For example transactions from all operational business activities, the result of investment gains and losses, and cash used in business financing.
Cash flow analytics take historical data and combine it with more dynamic, big data to enable organizations to rethink strategies for problem solving and decision making. This information can take an organization to another degree when it comes to understanding their cash position. Analytics can help organizations examine the profitability of both sales channels and customers, which market segments will increase profits, and what could impact the business in the future. The key is visibility.
The undeniable advantage of financial analytics is that they can be used to shape business strategies through reliable, real time factual insight, rather than relying on historical reporting and intuition.
The impact of real time visibility
Continual visibility into the performance of financial and operational activities is vital for decision making, but it's much more than that. Real time visibility shows the processes that support those decisions. For example, instead of studying historical data on employee turnover and the costs that go with it, financial analysts and HR departments will have the means to see exactly where the problems with employees are occurring - giving them the tools to intervene, implement measures to improve performance, and ultimately prevent costly turnover.
Real time visibility provides the financial analytics that can help companies determine risk factors, how to enhance and enrich business processes, and whether an organization's investments are focused in the most appropriate areas.
Cash flow forecasting
Cash flow forecasting is used by a company to predict the flow of cash coming in and out of their business in all areas, over a given period of time. A cash flow forecast shows projected cash based on income and expenses and is crucial in making decisions related to a company's finance status and liquidity, including funding, capital expenditure and investments.
Cash flow forecasting can be carried out in different time-horizons. Short-term forecasts could cover a 30-day period, and be used to highlight funding needs or excess cash in the immediate term.
Medium-term forecasts could cover between a month and a year ahead, while long-term forecasts could be used to look at sales and purchases between one year and five years ahead or even longer, depending on the nature of the business. The longer the time horizon of a cash flow forecast, the less accurate it's expected to be, given unforeseen factors - such as a global pandemic!
How will businesses cope with the challenges of a changing payments world?
Improving cash flow visibility with financial analytics
The vast amount of business intelligence and enterprise performance management gained from financial analytics affects every sector of an organization. Finance analytics are vital for helping companies predict and plan for the future, and involve using mountains of data to identify patterns to make predictions. Finance analytics could track for example, what a customer might buy, or predict a spike or downturn in the market - or how long an employee's tenure might be. This financial data can help corporate finance teams and treasury management to leverage that data, leading to making informed decisions and boosting an organization's value.
Finance analytics can help corporate leaders understand their top and bottom line performance, along with other indicators, like financial and macroeconomic data. It can measure and manage assets, and forecast variations within the organizations and competing industries. Financial analytics offers insights that can help improve a company's profitability and cash flow, as well as income statements and business processes.
Crisis management with real time cash flow visibility
During the height of the fallout from COVID-19, businesses had to react fast to an unprecedented crisis. Those organizations who had immediate visibility into their current and projected cash and liquidity positions were undoubtedly in a better position to manage business continuity than those who didn't.
Real time dashboards display live data that, with the touch of a button can be used to generate reports to help senior management with cash flow analysis, giving them the tools to make better informed finance and risk assessment decisions. The ability to view an organization's entire payments ecosystem provides management with solutions to problems, which ultimately leads to an increase in profitability.
How payment analytics helps treasury management
Viewing payment analytics through a single pane of glass indicates whether or not the payment process is running without interruption, and how cash flows are being directed. It also shows precisely where any issues are, and reports as to why they may be happening.
Cash management executives are responsible for a huge volume of activity and the related speed at which payments are processed, so having real time analytics allows CFOs and CEOs to drill down deep into the payments ecosystem to focus on areas that need attention.
Payment transaction monitoring for improved cash flow visibility
Through valuable data insights, led by information and payments data, a business can improve profitability, optimize revenue and cut costs. Without transaction data and analytics to get clear visibility into an organization's payments environment, they wouldn't be able to identify transaction performance issues, or detect fraud and other anomalies. Services, repair times and troubleshooting processes would be disrupted and cash flow could potentially be impacted.
Payment analytics tools allow a business to take historical data and apply it to things that are happening to a business right now, creating cash flow visibility.
This applies to sales and payment processing or any online services in the payment space. Performance management through analytics is important to the payment industry, as well as any business with a financial department. Every business needs to be able to see their cash flow and have the means to control it.
Learn the important differences between cash flow and fund flow in our latest blog post here
IR's Transact suite of payments solutions
IR Transact, built on the powerful Prognosis platform, simplify the complexity of managing modern payments ecosystems, bringing real-time visibility and access to your payments system. Transact gives organizations unparalleled insights into transactions and trends to help turn data into intelligence, and assuring the payments that keep you cash flow positive.
Businesses can gain unlimited access and insights into customer usage data, end-to-end transaction performance metrics. With dynamic visualization tools, businesses easily get a clear view of all this information to make proactive management decisions. Transact offers a thousand points of reference, from a single point of view.
