Agility First

In the face of a continuing crisis, corporate treasuries are looking for ways to improve data visibility, cash forecasting and liquidity management.

Disrupted by a global health crisis that puts a premium on good strategic and fiscal planning, organizations are depending more than ever on strong finance and treasury leadership.

“Cash is always king in a crisis, so financial leaders and teams can help their organizations by focusing on optimizing working capital and increasing transparency across specific finance KPIs [key performance indicators],” says Christoph Dubies, chief Strategy andTransformation officer at Serrala, a global fintech firm.

Knowing your organization’s biggest pain points and addressing them first “should be priority,” he stresses. “Start by optimizing processes that enhance visibility into cash, and improve cash flows, especially inbound payments from customers.” Automating financial processes adds value, as it enables users to minimize losses from bad debt, accelerate incoming payments and control outbound payments and supplier spend, he adds. “Enhancements like this will help ensure liquidity and secure sources of working capital for further strategic investments to build a strong, resilient organization for the future.”

Steve Wiley, vice president of Treasury Solutions at FIS, says the current scrutiny of cash forecasting within corporate treasuries reminds him of the 2008 financial meltdown, when many organizations moved to centralize liquidity management and improve cash forecasting.

“Historical forecasting data has not been useful for treasury departments during the pandemic,” Wiley says, “causing many organizations to reassess entire forecasting methodologies, including the technology used to aggregate forecasting data and publish forecasts.” This year and beyond, he expects treasury departments to publish more-frequent forecasts and strengthen reporting for working capital components such as accounts receivable (AR), accounts payable (AP) and inventory, which have often been neglected.

“A more frequent and comprehensive forecast will help corporates to navigate continued uncertainty in operational cash flows and supply chain disruptions,” says Wiley. “In order to meet business expectations for forecast improvement, we expect to see greater adoption of the latest cloud-based cash forecasting technologies, which will help immunize treasury operations from future pandemic-related interruptions to business.”

When revenue drops, the simple solution is to secure liquidity to cover costs over the affected period, says Luca Corsini, co-head of Global Transaction Banking at UniCredit. “However, how to go about sourcing that liquidity is a more complex matter that depends on a number of factors, such as the company’s ability to take on additional debt. Having assessed the factors at play, determining the right solution from across the range of banking tools can also be daunting.”

Banks’ first role is to understand their clients’ needs and constraints and put the right tools in their hands, Corsini says, whether that means a form of factoring, forfaiting, securitization or a combination of these. “Where fintechs can provide valuable support is in working with banks to make these tools increasingly accessible, agile and easy to use.”

Unlocking Liquidity Across the Supply Chain

UniCredit teamed up in June with fintech Taulia to enhance its working capital solutions, specifically its supply chain finance platform.

By supporting suppliers with early payments on their invoices, buyers can ensure their supply chain remains robust in time of crisis, able to cover costs and absorb unexpected expenses. “The Taulia platform ensures that UniCredit clients can execute this support in a quick and efficient way,” says Corsini, “opening up the possibility of supporting larger numbers of suppliers across a broader geographical range. At the same time, it is configured to integrate seamlessly with corporate enterprise resource planning systems.”

“The platform also helps users to extend support right down the chain to smaller suppliers, where onboarding to a large-scale supply chain finance program would be uneconomical given the sums of money involved,” says Corsini.

SAP has several customers using its SAP Ariba Discount Management technology to offer dynamic discounting in goods and services procurement to boost cash flow and improve liquidity. “Buyers pay suppliers faster in exchange for a discount,” says Falk Rieker, global head of Industry Business Unit Banking, “which mitigates supply chain risk by strengthening their suppliers’ cash flow so they can continue operating while fostering stronger, long-term trading relationships. Suppliers, many of which are small and medium-sized businesses, get paid faster, while gaining visibility into the certainty of cash flow from a nondebt source.”

Regardless of size, businesses must adopt technologies that improve their agility, Rieker argues. “Organizations need to innovate in order to be armed with the data necessary to make quick and accurate decisions, all while updating forecasts in real time,” he says. “SAP works with its customers and partners closely to strike a balance between optimizing current business models and innovating at the vertical edge, helping organizations develop new revenue streams and growth potential using digital technologies.”

Working with SAP, Lloyds Banking Group implemented a new cash management and payments platform in 2019 for corporate and institutional clients, says Rieker: “The solution offers clients a wide range of digital self-service tools for cash management and payments. The in-memory technology of SAP HANA [SAP’s relational database] allows both corporate and institutional clients to access these features with advanced real-time analytics capabilities.”

The uncertainty bred by the pandemic means organizations need visibility to data to make quick yet informed decisions.

Having immediate visibility to cash positions allows AR teams to make operational decisions quickly and supply treasury teams with daily inputs for forecasting cash balances, both crucial abilities for companies that need to make decisions about drawing on their revolving credit lines and simply running their business, Wiley contends.

“Before the shock of Covid-19 to the economy, organizations were looking for ways to improve visibility to their working capital,” he says. “Now it has become an absolute imperative for treasury organizations to understand their cash flow—not only from AR but also from AP and inventory—to allow them to make informed decisions that could have profound impacts on the ongoing viability of their company.”

Wiley sees artificial intelligence (AI) as a major driver in collections. “By leveraging a predictive risk assessment of customers and their invoices, the AI engine can automatically adjust the strategies being deployed,” he says. “High-risk customers will move into more-aggressive collection strategies. This can be as simple as more-frequent contact and/or changing the contact methods.”

Collection teams can focus their efforts on collecting from their higher risk accounts, as fewer resources are required to contact an entire portfolio while driving better collection rates. “Using a risk assessment that predicts the expected payment date for invoices provides a cash collection forecast that can be leveraged by treasury teams to create a more comprehensive and accurate cash forecast,” Wiley says.

The best tools for improving working capital are digitized processes that enable real-time information combined with standardized processes and technology, says Serrala’s Dubies, since they increase transparency. “If you have transparency on cash flows leaving or hitting your organization, you will be better prepared to manage and improve liquidity,” he says. “Lately, quite a few of our customers have confirmed that automating their finance processes quickly and positively impacted their working capital.”

Whatever methods turn out to work best for them, agile organizations will undoubtedly emerge better off than competitors that are reluctant to pursue new efficiencies. Says Rieker, “Businesses that have deployed a fully integrated platform have been able to optimize financial processes and promote business continuity, despite the pandemic’s disruption.”