Top Cash Management Trends and Challenges

Published Last Updated 7 min read

Turnover matters to business owners, but this measure of total sales can be misleading. A healthy turnover doesn’t automatically mean your business is on a firm financial footing. Even if you’re making lots of sales, you might remain cash-strapped if those funds are swallowed up before you can meet your monthly financial obligations.

There’s another gauge of financial stability that’s more important than turnover when it comes to managing your accounts, paying your bills and growing your business: cash management. So, what is it? What are the key trends in cash management? And what are the challenges?

What is Cash Management?

Cash management - also called treasury management - is the process of collecting and managing cash flows to ensure that your business has enough funds to operate - making it a key component of its financial stability.

For your business to function autonomously, you must maximise liquid assets while minimising outgoing operational and logistical costs. Effective management of these cash inflows and outflows allows your business to meet payment obligations, plan for future outgoings, and maintain financial stability to support daily operations and growth.

Trends in Cash Management

Low cash flow, which stems from poor cash management, poses an existential threat to businesses. The following cash management trends have the potential to shield you from this worst-case scenario by leveraging technology to improve your business’s cash flow.

Ongoing digital transformation

Traditional cash management processes are inefficient and error-prone. Despite these shortcomings, this manual approach is so entrenched that it remains in wide use. But the tide is turning thanks to the development and adoption of digital technologies. For example, cloud-based cash management tools are improving flexibility, forecasting, and security.

Wave goodbye to spreadsheets

From fragmented audit trails to access issues, to human error, cash forecasting with spreadsheets has become increasingly inefficient. Saying “but we've always done it this way” will only hold your business back. Liquidity management tools have the power to improve cash management efficiency through the automation of associated processes.

The rise of international payment solutions

Businesses that adopt a single payment tool for their cross-border payments - typically by partnering with a currency specialist - achieve greater control over their processing and approval. This payment efficiency also enhances other cash management priorities, such as liquidity management and cash visibility.

Security remains a priority

The proliferation of payment solutions has widened the attack surface for cybercriminals. Amid a subsequent rise in cyber-attacks, finance/treasury departments are demanding increasingly advanced risk mitigation capabilities to safeguard the business’s financial stability from these nefarious activities. For example, some organisations are leveraging artificial intelligence and machine learning to identify suspicious activity and manual errors.

Move to the cloud

Traditional decentralised cash management systems are being replaced by a transition to the cloud - a shift that delivers consistency of processes and controls. It also adds an extra layer of protection against capacity constraints amid increased remote working, cyber-attacks, and volume spikes.

Cash Management Challenges

Managing the movement of multiple payments that settle at different speeds is inherently complex. Unfortunately, common challenges can create unwelcome hurdles that further complicate the cash management process.

Lack of forecasting speed and quality

Cash flow forecasting is dependent on input from different departments within your business. Forecasting accuracy is often hampered by the speed and quality of incoming data from these departments, which are unaware of the role they play in effective cash management.

Failing to understand the cash flow cycle

A lack of understanding of the timing of cash inflows and outflows, such as when to pay for accounts payable, can be crippling. For example, during a period of growth, a business might become cash-strapped because of over-purchasing inventory before receiving payment for it.

International payments

International payments and exchange rate fluctuations add another layer of complexity to cash management issues, potentially denting your profit if not accounted for. The challenges associated with these payments fall into three broad categories: reconciliation, exchange rate variables and sub-optimal payment terms.

Poor capital investments

If you allocate capital to projects that fail to match RoI forecasts or generate sufficient cash flows, the investment will become a net drain on the cash flow statement, and eventually, on your cash balance.

Uninformed decisions

To avoid overspending when they should show restraint, proactive business owners inform their decisions by researching market-sector analysis reports and tracking KPIs. This is a challenge for some owners, however, who are hamstrung by the emotional attachment they have to their operations and customers. This can blinker them to the insights that data can provide during the cash management process.

Key Takeaway

Creating and sustaining your business’s financial stability requires effective cash management. After all, “cash” is the key asset used to meet financial obligations, meaning it must be managed proactively to maximise earnings and remain solvent.

Common challenges complicate this vital process, but recent technology trends in cash management are streamlining processes and making it possible for ambitious SMEs to thrive.

Make International Payments with Clear Treasury

Clear Treasury specialises in helping businesses shield their international payments from currency risk - providing them with cash management clarity. Exchanging money into another currency and transferring it overseas can be daunting and confusing. Aware of this, we use our knowledge and experience to cut through the jargon and provide you with a friendly and personal service.

When you join us, you’ll be assigned a dedicated account manager. In addition to helping you benefit from quick, easy, and secure transfers, they can outline the tools available to mitigate the impact of currency risk on your international payments, including forward contracts.

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