Automating processes for lean finance teams with complex treasury needs

Finance and treasury teams have always been managing treasury operations, even before Excel came into existence.

Tracking payments, making intercompany transfers, hedging currency risks, and managing debt and investments aren’t new tasks. Moreover, many of these tasks are repetitive, inefficient, time-consuming, and error-prone. But still, up until recently, mid-size companies and small enterprises used manual processes to track, monitor, and manage cash flow, leaving automated treasury management systems to large enterprises.

This trend is now shifting, with more mid-size and small enterprises companies looking for ways to automate their treasury and cash flow management. And for good reason – a number of important developments make cash flow management more critical than ever for these businesses, creating a strong incentive to optimize and automate processes:
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Rising interest rates

The end of ZIRP and rising interest rates, create a need to manage both cash reserves and debt more efficiently. There’s a huge incentive to optimize yield on one hand and minimize cost of capital on the other. 

Poor cash management leads to significant losses and missed income opportunities for companies that hit the bottomline harder than ever before in the last 15 years. Another possible contributor, also related to the end of ZIRP, is that capital became more scarce, which means the need to efficiently manage existing capital has become greater.
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Globalization

Companies are going global at an increasing pace, opening off-shore accounts,e and transacting in more currencies than ever before. This global movement opens up a much wider pool of opportunities for commercial expansion on the one hand, but on the other - it also creates a more decentralized cash footprint, which is much harder to track and manage. 

So while the world is becoming smaller, finance teams' workload is blowing up to almost unmanageable proportions.
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Increased counterparty risk

SVB and FRB’s implosion turned the spotlight on banks’ financial stability. This means that knowing that your company’s cash is stored in a reputable bank is simply no longer enough. Because of that, more boards and management teams are demanding that finance leaders adhere to a strict policy, and hedge against counterparty risk by opening and managing accounts across multiple banks. 

This “placing your eggs in multiple baskets” strategy, while mitigating some risks, also makes it more challenging for finance teams to track and manage cash flow, creating an increased demand for real-time cash visibility and control.

Final thoughts

The convergence of the trends above, coupled with the accelerating availability of banking APIs and other open banking solutions, are enabling new and improved solutions that better fit the needs of mid-size companies. 

There’s an unprecedented opportunity for finance leaders to act now and get rid of manual, error-prone, time-consuming processes. Automating your treasury operations is how you can enable your company to save precious time, regain control, and most importantly – improve your capital efficiency. It’s high time to get smarter.

The basis for any cash flow insight is understanding what drives cash inflows and outflows. Finance and treasury teams are used to downloading bank statements and manually categorizing each transaction to create the cash database that can then be used for various analyses. Rule-based categorization saves significant time and reduces some of the manual effort. But it still requires initial, time-consuming setup and ongoing maintenance.

AI-based models are changing the game for transaction categorization. From automatically identifying certain types of transactions (e.g. intercompany transactions) to enhancing categorization by identifying similarities between uncategorized and previously-categorized transactions, AI makes the job faster, easier and more efficient. 

Additionally, AI enables companies to leverage a broader knowledge base (such as how bank fees are charged by different banks). Bottom line - AI is reducing the time needed to categorize transactions by >90%, without compromising on (and even improving!) categorization accuracy. 

Trends, Anomalies, and Insights

AI is transforming treasury operations by automating routine tasks and providing predictive insights that empower teams to make smarter, more strategic decisions.

Once the team has a robust database of categorized transactions, it’s time to analyze and make decisions. All the data is there, you just need to find the interesting insights. Sounds easy right? In fact, every finance or treasury analyst knows that's actually the toughest, most time-consuming part.

Thinking of which queries to run, technically building the reports, and identifying the trends and anomalies that are insightful, are all tedious tasks that require a lot of trial and error and repeated number crunching.

AI is revolutionizing cash flow analytics. New generative models are able to identify trends in a contextual manner, and surface only those insights that can potentially have an impact on the business. Anomaly detection can be easily calibrated to surface suspicious transactions and high-impact inflows and outflows that require the team’s attention.

Finance and treasury professionals’ shortage is a huge problem that’s only going to become worse. The ability to leverage AI empowers lean teams to focus on the insights and on devising effective action plans, rather than on manual, less value-add number crunching. We have entered a new reality, one that makes finance and treasury teams much more strategic. 

AI revolutionizes cash flow analytics by identifying contextual trends and anomalies, enabling treasury teams to focus on strategic decision-making rather than manual data analysis

Cash Flow Forecasting

This is one of the most sought after AI features when it comes to cash flow management. It is also one of the most over-hyped. Yes, it would be amazing if a magical AI could tell the future of cash flow and accurately predict where a company’s cash balance is headed. But, this is unfortunately not a realistic expectation (at least not until AGI takes over all of our lives and makes all decisions).

Even the most advanced AI-based models use historical data to forecast the future, and the reality is that for complex companies, the future never behaves exactly like the past. There are always changes that need to be factored in and taken into account when trying to build and roll an accurate cash flow forecast.

Moreover, the goal of a cash flow forecast isn’t just to get to the bottom line of ending cash balance, it’s also to understand causes and effects and respond to cash changes effectively so as to prevent problems. If someone offers you a click-of-a-button automated AI cash forecast, run as fast as you can! 

Nevertheless, when used correctly, AI can have tremendous value for accurate cash flow forecasting. While it’s not a fortune teller, it can effectively identify trends and suggest optimal formulas to use, provide basic root-cause analyses, and suggest actions and mitigations that can dramatically improve both the forecast building process and the decision making process that follows. 

Dynamic, Natural Language-generated Reporting 

Building reports is hard. Whether it’s in Excel, a BI tool, or a dedicated treasury platform, inputting the relevant syntax that will spit out the analysis you’re trying to perform requires some technical skills and tedious trial and error until you get it right. For example, SQL queries such as w​​indowing, aggregation, and grouping don’t come naturally to most treasury analysts. 

This is one area in which generative AI is creating a completely new reality. LLMs (large language models) that tap into companies’ cash data can automatically generate any report that crosses an analyst’s mind, based on natural language input. Want to know what were the three biggest expenses last week? Just ask. Want to understand how fast collection is growing in a specific geography?

No problem. The two caveats here are (1) the data needs to be properly categorized, otherwise it’s a classic garbage-in-garbage-out situation (AI can help with that too – see #1), and (2) that you need to know what’s interesting to explore (see #2).

AI is Changing the World

AI really is changing the world, and finance and treasury operations are no exception. It can leapfrog a few of your team’s abilities, including some important ones:

• Quickly and accurately categorize transaction
• Surface important and insightful trends and anomalies
• Build accurate and explainable cash flow forecasts
• Empower you to easily answer questions regarding your company’s liquidity. 

However, it’s important to remember that it’s not like a magic device that transports you instantly from one place to another. A more fitting analogy is that it’s like a bike you can ride to get from point A to point B – you still have to pedal, but you will get where you're going faster and less sweaty.  

 Are you interested in learning how your company can benefit from AI powered cash flow management? Let's talk.

‍AI is a term that’s been thrown around a lot recently – AI forecasting, AI automation, AI finance operations, AI reconciliation, AI EVERYTHING. While the progress that’s been made in the field is undoubtedly a game changer for treasury teams, there’s also a lot of buzz and hype that’s not always backed by actual value.

‍The goal of this post is to demystify AI and shed light on some areas where it can truly give finance and treasury teams superpowers. Let’s get to it.

Cash flow monitoring is the tracking and analysis of inflows and outflows, to ensure financial health. In this guide, we cover everything there is to know about cash flow monitoring, from how it works, to recommended frequency to responsibilities, and more. Read to learn how to better improve your financial decision-making and which tools can help.

What is cash flow monitoring?

Cash flow monitoring is the systematic process of tracking, analyzing, and managing the inflow and outflow of funds within a business. By closely monitoring cash flow, businesses can ensure they have sufficient liquidity to meet their short-term obligations, avoid potential cash shortages, and make informed financial decisions. As a result, they can safeguard against financial disruptions and foster stability and growth.

Why is cash flow monitoring important?

Cash flow monitoring is a recommended practice for organizations of any size, from 1-person businesses to mega-enterprises. This is because the benefits of cash flow monitoring include:

• Improved financial health - By regularly tracking the movement of funds, businesses can ensure they have enough cash on hand to meet their obligations, such as paying employees, suppliers, and creditors.
• Better risk management and decision-making - A real-time view of cash inflows and outflows allows businesses to anticipate potential cash shortages or surpluses and make informed decisions accordingly. This includes adjusting spending, postponing or accelerating investments, or seeking additional financing if necessary. Additionally, understanding cash flow trends allows businesses to make strategic decisions, such as expanding operations, entering new markets, or negotiating better terms with suppliers and lendersEffective cash flow monitoring is the backbone of financial stability, enabling businesses to proactively manage their cash reserves and anticipate potential financial challenges."
  

Effective cash flow monitoring is the backbone of financial stability, enabling businesses to proactively manage their cash reserves and anticipate potential financial challenges

Step 1: Outline Processes and Systems

• Determine how often you will review cash flow—daily, weekly, or monthly—depending on your business’s size and complexity.
• Choose and implement accounting software or financial management systems to automatically track and record cash transactions.
• Configure your cash flow monitoring systems to alert you when cash balances fall below a certain threshold or when there are significant deviations in expected inflows and outflows.
• Set up a process for regularly reconciling your bank statements with your cash flow records to ensure all transactions are accounted for and to identify any discrepancies. You can do this manually or automatically with your chosen software. 

Step 2: Define Inflows and Outflows

Clearly define inflow and outflow categories:

• Cash inflows include sales revenue, accounts receivable, loans, financing, asset sales, and interest income.
• Cash outflows include operating expenses, accounts payable, loan repayments, capital expenditures, taxes, and fees.

Step 3: Use Cash Flow Templates

Cash flow templates are designed to help you simplify, organize, and analyze your cash flow data in a structured format. This makes it easier to spot trends, anticipate future cash needs, and make informed financial decisions.

Depending on your business’s needs, you can select templates that focus on different time frames, such as weekly, monthly, or quarterly cash flow projections. In many cases, you can customize the templates to fit your specific business operations.

Integrate these templates with your chosen system, enabling automatic data population and real-time updates.

That’s it! You’re now ready to begin monitoring your cash flow.

Cash Flow Monitoring Frequency

The frequency of cash flow monitoring should be tailored to your business’s specific needs:

‍Daily Cash Flow Monitoring

Business Type: Businesses with high transaction volumes or with tight cash flow margins
Requirements: Checking bank balances & recording all cash inflows and outflows
Purpose: Ensuring that cash on hand is sufficient to cover immediate needs

Weekly Monitoring

Business Type: SMBs with stable cash flow patterns or businesses with predictable income and expenses
Requirements: Reviewing cash balances, accounts receivable and payable, and any upcoming financial obligations
Purpose: Ensuring there is enough liquidity to meet payroll, supplier payments, and other essential expenses

Monthly Monitoring

Business Type: Larger organizations with well-established cash flow processes or companies with longer payment cycles
Requirements: A comprehensive review of the previous month’s cash flow, including detailed analysis of cash inflows and outflows, budget variances and financial forecasts 
Purpose: Identifying trends, planning for future cash needs, and making strategic adjustments to the business plan

Quarterly/Annual Monitoring

Business Type: All businesses
Requirements: Evaluating cumulative cash flow data, assessing the accuracy of forecasts, and adjusting financial strategies for the upcoming period
Purpose: Assessing long-term financial performance, making significant investment decisions, preparing for tax obligations and setting budgets for future periods

Monitoring Responsibilities

Assigning clear responsibilities for cash flow monitoring helps ensure that this important task is handled efficiently and effectively. The specific roles responsible for this function can vary depending on the size and structure of the organization. Here's how:

Start-up

The primary focus at this stage is on maintaining liquidity, ensuring that the company can cover essential expenses, and making informed decisions about scaling operations or seeking additional funding.

• Founder(s) - Overseeing all financial aspects, including cash flow monitoring, budgeting, and financial planning. They make critical decisions about expenditures, investments, and revenue management.
• Finance Manager/Accountant - If the start-up has a dedicated finance person, they will take over daily and weekly cash flow monitoring, generate reports, and advise the founders on financial decisions.

Mid-market

The focus in a mid-market company is on optimizing cash flow to support growth, managing working capital efficiently, and making strategic investment decisions.

• CFO - Overseeing the overall financial strategy, including cash flow management. They set policies, review financial reports, and make high-level decisions based on cash flow data.
• Controller - Managing the day-to-day accounting operations, including cash flow monitoring, ensuring that all inflows and outflows are accurately recorded, and preparing regular cash flow statements.
• Financial Analysts - Supporting the controller by analyzing cash flow data, forecasting future cash needs, and identifying trends that could impact the company’s financial health.

Enterprise

The focus in an enterprise is on strategic cash management, ensuring liquidity across multiple business units, optimizing cash flow for large-scale operations, and supporting global financial strategies.

• CFO - Leading the financial strategy. They have ultimate responsibility for ensuring that the company maintains a strong cash position. To do so, they work closely with other executives to align cash flow management with the company’s long-term goals.
• Treasurer - Managing the company’s cash and liquidity, including cash flow monitoring, managing bank relationships, and optimizing the use of cash resources.
• Controllers (Business Units) - Each business unit or division may have its own controller responsible for monitoring cash flow within their specific area. These controllers report up to the corporate controller or CFO.
• Financial Analysts - Monitoring cash flow by conducting detailed analyses, creating forecasts, and providing insights that guide decision-making across the company.
• Accounts Payable/Receivable Teams - Managing the inflows (receivables) and outflows (payables), ensuring timely collection of payments and managing disbursements to suppliers and vendors.

Cash Flow Monitoring vs. Cash Flow Forecasting

Cash flow monitoring and cash flow forecasting are two closely related, but distinct, financial practices in business liquidity and financial health management. While they are complementary, each serves a different purpose in the financial management process.

As discussed above, cash flow monitoring is the ongoing process of tracking and analyzing the actual inflows and outflows of cash within a business. It involves keeping a close watch on how much money is coming into the business (such as from sales, loans, or investments) and how much is going out (such as for operating expenses, loan repayments, and other expenditures). The goal is to ensure that the business maintains sufficient liquidity to meet its immediate and short-term obligations.

The primary focus of cash flow monitoring is on the present and recent past. It provides real-time or near-real-time insights into the business’s current cash position, helping to identify any immediate issues or discrepancies. Monitoring helps businesses react swiftly to cash flow problems and make informed decisions to maintain operational stability.

Cash flow forecasting, on the other hand, is a forward-looking practice that involves predicting the future cash inflows and outflows of a business over a specific period, such as the next month, quarter, or year. Forecasting is based on historical data, current financial conditions and assumptions about future revenue, expenses, and market conditions.

The primary focus of cash flow forecasting is on the future. It aims to predict potential cash shortages or surpluses and to plan for upcoming financial needs. This helps businesses make strategic decisions about investments, growth, and funding, ensuring they are prepared.

Together, cash flow monitoring and forecasting provide a comprehensive view of a business’s financial health, enabling both immediate and strategic decision-making. Effective cash flow monitoring provides the data needed to improve the accuracy of cash flow forecasts. Conversely, forecasting can inform monitoring practices by identifying key areas to watch closely in the short term.

Cash Flow Monitoring vs. Cash Flow Management

While cash flow monitoring has been discussed above, cash flow management is the planning, controlling, and optimizing the flow of cash in and out of a business. It encompasses a range of activities aimed at ensuring that the business has enough cash to meet its obligations, invest in growth opportunities, and remain financially healthy over the long term.

The primary focus of cash flow management is on both the short-term and long-term financial stability of the business. It includes not just monitoring cash flow but also forecasting future cash needs, managing working capital, optimizing payment cycles, securing financing and strategically planning for the use of cash reserves.

Cash flow management includes cash flow monitoring, forecasting, budgeting, and analysis. The data and trends identified through cash flow monitoring serve as the foundation for cash flow management decisions. Effective monitoring enables businesses to react to immediate cash flow issues, while management strategies ensure long-term financial health.

Pains of Current Cash Flow Monitoring Methods

Many businesses still rely on traditional methods such as Excel-based tracking and manual bank account management for monitoring their cash flow. While these methods can be effective to a certain extent, they also come with significant challenges and limitations that can hinder efficient financial management.

Excel-Based Cash Flow Monitoring

• Excel sheets require manual input of data, which is time-consuming and prone to human error. Even small mistakes, such as a misplaced decimal point or a forgotten entry, can lead to inaccurate cash flow statements, causing businesses to make decisions based on flawed data.
• Excel-based cash flow monitoring is often not updated in real-time. This makes it challenging to maintain an accurate view of the business’s current financial position.
• Managing growth within Excel can become cumbersome, with spreadsheets becoming more complex and harder to navigate. This can lead to inefficiencies and increased risk of errors as more data points and formulas are added.
• Sharing and updating the same file among multiple users can lead to version control issues, where different team members may work with outdated or conflicting data. This lack of collaboration can slow down decision-making and create confusion.

Bank Account Management

• Relying solely on bank statements provides a fragmented view of the company’s financial health. Bank statements typically reflect only completed transactions, which might not account for outstanding invoices, upcoming expenses, or other commitments.
• Bank account management often involves reconciling bank statements with internal records, a process that can be delayed by several days or even weeks. This delay means that businesses might not be aware of cash flow issues until it’s too late to address them proactively.
• Bank account management focuses on the present balance, without offering tools for forecasting future cash needs or identifying potential shortfalls. This makes it difficult for businesses to plan effectively and avoid cash flow crises.
• Reconciling multiple bank accounts manually is time-consuming and can be a tedious process, particularly for businesses with complex financial operations. This effort takes valuable time away from more strategic financial management tasks and can lead to missed discrepancies or errors.

Conclusion

When it comes to managing cash flow, many businesses find themselves using outdated methods like Excel-based tracking and manual bank account management. These traditional techniques are rife with inefficiencies, errors, and risks that can severely undermine a company's financial health.

With Excel, the manual input of data is time-consuming and error-prone. On the other hand, relying solely on manual bank account management offers a fragmented view of your financial health. These outdated methods are risky, drain valuable time and resources, divert attention from more strategic financial management tasks, and expose the business to financial risks.

Panax is a comprehensive cash flow management solution that automates and simplifies the tracking, analysis, and forecasting of your cash flow, while providing real-time insights that enable for making informed decisions. 

• Automation and Accuracy - Panax automatically pulls in data from various banks and financial institutions, ensuring that cash flow records are always accurate and up-to-date.
• Real-Time Monitoring and Forecasting - Panax offers real-time monitoring and predictive analytics that enable foreseeing potential cash flow issues before they arise. With advanced forecasting tools, Panax empowers treasury teams to plan effectively, ensuring the business always has the liquidity it needs to thrive. 
• Collaboration - Panax facilitates seamless collaboration among teams, eliminating version control issues and ensuring that everyone is working with the most current data. 

Panax not only simplifies cash flow monitoring but also enhances your ability to manage and plan your finances strategically, ensuring long-term stability and growth. Start today.

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