Luckily with a solid grasp of cash flow management, your company can meet operational needs and capitalize on growth opportunities. For the next several minutes, we’ll look at two action items that help maintain an advantageous capital supply: Cash flow statements and cash flow forecasting.

What is a cash flow statement?

A cash flow statement is a historical view of cash inflows and outflows over a specific period. Businesses use cash flow statements to help assess past performance, while data informs future strategies and ensures accurate financial records. 

What is cash flow forecasting?

Cash flow forecasting uses the company’s historical financial data to identify potential surpluses or shortages and adjust spending as necessary.  

Ultimately, cash flow statements and cash flow forecasting support daily operations as well as long-term growth and sustainability.

A cash flow statement offers a historical perspective on a company's cash movements, while cash flow forecasting anticipates future cash needs to guide strategic planning.

What’s included in a cash flow statement?

There are three main components of cash flow statements: operating, investing, and financing activities. Here’s a breakdown of each.

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Operating Activities

The operating activities section details the core revenue activities of a company, ie cash flows directly related to the production and sale of goods and services. Operating activities help gauge operational efficiency and profitability by specifying: 

• Cash received from customers
• Cash paid to suppliers and employees
• Other operational expenses and income

The operating activities section allows you to assess the company's ability to generate positive cash flow in the short term, which is essential for maintaining liquidity to meet its obligations. 

Investing Activities

Investing activities capture cash flows related to the acquisition and disposal of long-term assets and investments—for example, new machinery, technology, or business acquisitions. Investing activities should also note any: 

• Purchases of property, plant, and equipment (PPE)
• Sales of long-term investments
• Loans provided to or received from other entities

Investing activities help gauge how the company allocates resources for long-term growth. For example, are you spending more on acquiring assets or divesting? This provides insights into the strategic direction and potential future revenue streams. 

Financing Activities

The financing activities section highlights transactions with the company's owners and creditors to fund:

• Proceeds from issuing shares
• Repayment of borrowings
• Dividend payments to shareholders

This section highlights the reliance on external financing, such as loans or issuing shares, and the capability to repay borrowings and distribute dividends. This section is pivotal for risk management as it indicates the company's ability to manage debt and inform financial risk strategies.

What are the types of cash flow forecasts?

There are several types of cash flow forecasting, all of which can enhance your company's financial planning and stability. Let's explore the three main types.

Scenario analysis is the creation of different financial situations based on potential events. It helps you understand how various occurrences—like economic downturns, market shifts, or changes in your business operations—might impact your cash flow. By evaluating best-case, worst-case, and most-likely scenarios, you can prepare more robust financial strategies. 

Rolling forecasts are dynamic and continuously updated. Unlike traditional static forecasts that cover a fixed period, rolling forecasts extend beyond this set timeframe. They adjust as new data comes in, providing a real-time view of future cash flows. This allows companies to be more agile and responsive to changing business conditions. 

Sensitivity analysis assesses the impact changing key variables have on your forecast. By tweaking variables like sales volume, cost of goods sold, or interest rates, you can see how sensitive your cash flow is to these changes. This method helps pinpoint the most critical factors affecting your financial health and supports more informed decision-making. 

What’s included in cash flow forecasts?

Cash flow forecasts should contain four main categories of information: expected income, projected dates for receiving that income, expected costs, and projected dates for when costs are incurred. More specifically, cash flow forecasts include:

• Opening balance: The balance at the beginning of the forecast period 
• Receipts: Income from sales, interest, and asset sales, broken down by item 
• Total receipts: The total amount of receipts 
• Payments: Expenses from materials, wages, marketing, and so on broken down by cash flow item 
• Total payments: The total amount of payments 
• Net movement: The difference between the total amount of cash a company receives (cash inflows) and the total amount of cash it spends (cash outflows) during a specific period, either by individual item or total 
• Closing balance: The balance at the end of the forecast period 
• Projected dates: The projected dates for when income will be received and costs will be incurred 
• Non-sales income: Income from sources like tax refunds, grants, investments, and royalties

Cash flow forecasting is critical to several key areas of the business’s financial operations such as resource allocation, capital structure planning, and supporting growth initiatives. Here’s why: 

1. Resource allocation: By predicting future cash flows, businesses can allocate resources more effectively, ensuring that funds are available for operations, investments, and unexpected expenses. 

2. Capital structure planning: Accurate forecasts allow companies to plan their capital structure—balancing debt and equity—to maintain financial stability and minimize costs. For example, a forecast that highlights periods of high cash outflows might prompt a company to seek additional financing or adjust its debt repayment schedule. 

3. Supporting growth initiatives: Forecasting enables companies to anticipate growth needs and plan accordingly. This means ensuring that sufficient cash is available for projects, such as market expansion, R&D, and acquisitions, thus supporting long-term growth objectives

Real-life examples of cash flow forecasting & cash flow statements 

Before looking at what these two essential financial tools look like in real scenarios, here’s a recap of their definitions: cash flow statements are a historical view of where your money has been. Cash flow forecasting shows where your money will be. 

By combining these tools, you get a comprehensive picture of past performance and potential future outcomes, making it easier to plan for growth and navigate the complexities of the mid-market landscape. Let’s look into how cash flow statements and cash flow forecasts play out in the following scenarios:

• New product launch
• Seasonal market fluctuations 
• Expansion into new markets 
• Economic downturns

‍New product launch: Imagine your mid-market company launches a new product. The cash flow statement reveals the previous costs of similar product launches and the generated revenue.  With this information, you can use the cash flow forecast to predict future cash inflows and outflows, helping you plan for the necessary working capital and anticipate any shortfalls. 

Managing seasonal fluctuations: By examining cash flow statements, you can identify financial patterns during different seasons—higher sales in summer and lower in winter. Using this data, your cash flow forecast will cover expenses in off-peak times and make the most out of peak periods. 

Expansion into new markets: If your growth company is considering an expansion into new markets, cash flow statements can highlight how previous expansions impacted cash flow. Metrics like initial overheads, marketing spend, and time to breakeven are shown. Leveraging these insights in your cash flow forecast helps gauge the potential financial impact, thereby informing budget allocations and risk management strategies. 

Economic downturns: During economic downturns, historical cash flow statements can provide critical insights into how your company managed cash in previous crises. In this circumstance, forecasts will likely include strategies such as cutting non-essential expenses, securing lines of credit, or delaying capital expenditures for liquidity and operational stability.

Applying cash flow statements & forecasting to growth strategies

Effective growth planning hinges on cash flow statements and cash flow forecasting. Let's briefly touch on how these financial tools can be game-changers for your strategy. 

Managing expansion risks: Analyzing cash flow statements allows growth and mid-market companies to learn from past inconsistencies and make informed decisions to avoid similar pitfalls. On the other hand, cash flow forecasting helps you anticipate potential cash shortages and prepare contingency plans in advance. 

‍Optimizing Cash Reserves: Understanding your cash inflows and outflows through detailed cash flow statements sets the stage for optimizing cash reserves. This historical data can highlight periods of high liquidity, making a solid case for when to accumulate cash reserves. Forecasting takes this a step further by predicting future cash positions, enabling you to take proactive actions such as short-term investments or debt repayments during times of surplus. 

Financing Growth: Cash flow statements help you demonstrate financial health to potential investors and lenders by showcasing your ability to generate and manage cash effectively. To strengthen your pitch, cash flow forecasting projects how additional funds will be utilized and the expected returns. Together, they provide a compelling case for securing funding for expansion initiatives. 

By harnessing the insights from both cash flow statements and cash flow forecasting, businesses can navigate growth with greater confidence, ensuring a balance between aggressive expansion and financial management.

Quick tips for capital efficiency

You can achieve working capital efficiency by focusing on three areas: implementing working capital management across the organization, leveraging technology, and reviewing risk management policies. 

1. Implementing working capital management across the organization‍

Make an organization-wide effort to consider the cost of working capital when making decisions. This ensures that each team understands its impact on working capital and is aligned with company goals. For instance, companies can use key performance indicators (KPIs) such as days sales outstanding (DSO) and days payable outstanding (DPO) to assess performance at different levels and departments. This allows the organization to track progress. 

2. Leveraging technology‍

In 2024 and 2025, many companies will swap human-error-prone tools like Excel for advanced technology such as Machine Learning (ML) and predictive analytics to boost operational cash flow forecast accuracy. Utilizing real-time data and analysis within your tech stack allows the business to adjust liquidity, risk, and funding strategies to meet current or future demands. 

3. Reviewing risk management policies‍

To get the most out of cash management solutions, review your risk management policies to ensure nothing slips between the cracks. Ideally, businesses review risk management policies at least once a year, though changing markets may necessitate more frequent reviews to address potential challenges.  

A better way to manage cash flow

Combining cash flow statements and forecasting allows you to assess past performance while predicting future financial health for better decision-making and resource allocation. This integration can help your business navigate uncertainties and seize growth opportunities effectively.

However, modern cash management faces several challenges.

• Reliance on Excel: Using Excel for cash management can lead to errors and inefficiencies due to manual inputs and a lack of real-time data.
• Poor Visibility: Limited visibility into cash flows can hinder a business's ability to make informed decisions, leaving them reactive rather than proactive.

Fortunately, solutions like Panax can significantly alleviate these challenges. 

Panax offers a comprehensive suite of tools designed to automate and streamline your cash management processes. With advanced features like customizable templates, automated data entry, and real-time updates, Panax removes reliance on cumbersome spreadsheets, reducing human error and streamlining your processes.  

Get in contact today to see how Panax can provide full visbility into your cash managementFor any business, understanding financial health is critical. In fact, 97% of CFOs make cash and liquidity management a key focus with many finding new ways to alleviate challenges such as relying on Excel or using tools with poor visibility into finances. 

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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As companies grow, so do their cash management requirements. This leaves CFOs and treasury teams with new challenges to deal with. They need to manage multiple accounts across multiple currencies and geographies, ensure optimized use of financial instruments like credit lines and investments, gain control of their liquidity status, forecast cash flows, and more. The cost of an error is high, which is why many teams turn to cash management solutions at this stage.

Modern cash flow management solutions are automated platforms for optimizing cash flow. Some of them are also AI-driven. Instead of dealing with bulky, complex spreadsheets, they collect all your cash flow data into the platform. and present it with an additional layer of analysis. This streamlines the cash management and forecasting processes, ensures up-to-date visibility, and helps lean finance teams to manage cash risks,optimize liquidity and increase ROI on excess cash or debt.

While the benefits of adopting a cash flow management solution are obvious, choosing the right solution can be challenging. The following items should not be missed when evaluating your solution. Following this list ensures you are able to maximize your efforts and free yourself up for other responsibilities. 
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A robust cash flow management solution is essential for real-time financial tracking, ensuring that your business stays on top of its financial health with accurate and integrated data
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1. Complete cash visibility

Obtain a comprehensive and complete daily view of your cash positioning, including all bank and payment accounts. Make accurate and relevant short-term and long-term decisions with confidence without errors and data integrity risks. Look for:

• A single and centralized dashboard

• Up-to-date liquidity snapshot of cash, investments, and restricted cash

• Ability to filter across accounts, institutions, currencies, and more

• Daily/monthly cash reports

• Trends analysis

• Customizable reports

2. Reliable and comprehensive data connectivity

Probably the most important item on the list - Ensure your cash management solution brings in all the data you need to manage your cash flow. This will ensure your data is reliable, regularly updated, comprehensive, and enables you to make decisions that support your financial needs. Look for:

• Data connectivity via APIs to all global financial institutions, including banks, ERPs, and cash platforms, and any other financial systems that you use so that your data is regularly updated.

• Reliable data connectivity when APIs are not available, or not supported. Make sure there are alternative methods of gathering data from all financial institutions, even those that don’t support API connection, so you can get full cash flow visibility across all your accounts.  

• An overview and deep-dive of your cash flow and all activities including:
  - Reconciliation of transactions
  - Inflows and outflows
  - Trends
  - Historical balances

3. Reports and insights

Identify and prevent cash-related risks and identify and seize cash-related opportunities to optimize cash management and ensure errors are prevented. Look for:

• Actionable insights for effective cash management

• Alerts that allow immediate response

• Ability to set up account automatic buffers to improve capital efficiency and transfers

• FX hedging support

4. Resource efficiency

Make sure using your cash management solution is easy and intuitive to use. This will be one of its main advantages over using Excel: replacing manual work, accessible from anywhere, and freeing up you and your team for other prioritized needs. Look for:

• Self-serve: No IT required

• Tagging capabilities

• Easy setup

• SaaS solution

• Collaboration capabilities

5. Smart categorization abilities

Manage your accounts, transactions, and cash positioning to accurately analyze your current and future cash flow. Look for:

• Ability to create customized categories and sub-categories

• AI-based categorization process to replace your manual labor

• Automated ERP matching

6. Forecasting abilities

The adoption of a new cash management solution is a great opportunity to automate your cash forecasting, increase its effectiveness, and improve forecast quality by reducing human errors.. Look for:

• Easy comparison of forecasts against actuals

• Easy data collection and categorization, including ERP data

• Customizable forecasting methods for your business

• AI-based forecasting for tailored insights

7. Security

Safeguard your organizational data to ensure your cash flow data is secure, comprehensive, reliable, and available for you to use. For data security look for:

• Compliance with leading regulations like SOC 2

• Application security through practices like third-party penetration testing and vulnerability scanning

• Data encryption in transmission and at rest

• Real-time monitoring of risks and policy compliance

• Access management- RBAC, least privilege, etc.

• Secure development practices

What’s Next?

Choosing the right cash management solution is a strategic choice, since it will directly impact your ability to streamline financial operations, manage liquidity, and optimize cash flow. Therefore, this decision should not be taken lightly. Use this checklist to evaluate and compare different solutions. Don’t be afraid to ask vendors the difficult questions it raises, from which data they connect to to how they support forecasting, and more. By comprehensively comparing solutions, you can ensure your treasury operations will be more robust and accurate than ever. 

Learn more about Panax’s cash flow management solution that supports lean finance teams with complex treasury management needs.

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Cash flow management is the lifeblood of your treasury operations. It allows you to properly and accurately track the money that is coming in and out of your business and to forecast cash flow needs. A comprehensive and reliable data set is the basis for a reliable and effective management of cash flow.

In this blog post, we co​​mpare three popular technologies used to gather cash data including: file-based systems, APIs and modern data connectivity systems. We dive in to see which ones help CFOs and treasury teams obtain accurate and relevant data to enable financial health and relevant forecasting.

Cash Flow Management Requirements

Before diving into the three technologies, let’s look at the requirements treasury teams have from cash management technologies and solutions:

A modern cash flow management solution should ensure:

• Data freshness - Providing and displaying fresh and up-to-date financial information, at all times. This allows you to always have a clear and up-to-date picture of the company's financial situation and health. Fresh and up-to-date data is essential for managing liquidity, optimizing working capital, avoiding potential cash shortages or surpluses, addressing discrepancies and enhancing overall financial accuracy.
• Data richness - Ensuring financial data is complete in depth and breadth, including transaction descriptions, vendor descriptions, information on transaction senders and receivers, historical data and multicurrency data support. Rich data provides a comprehensive view of all financial transactions, trends, and patterns, enabling more accurate forecasting, granular financial analysis, and improved budgeting and strategic planning.

• Format standardization - Creating standardization among financial data and establishing standardized formats for financial data entry, reporting and documentation. This ensures consistency, accuracy and efficiency across financial processes, leading to improved overall quality and reliability of financial information.
• Security - Implementing access control to determine who can interact with financial systems and what data they can access. This protects sensitive financial data from breaches and cyber threats, maintaining the trust of stakeholders and ensuring compliance with security standards and regulations.
• Future-proofing - Adopting scalable and flexible financial management tools that integrate with other business systems, are capable of handling increasing transaction volumes and complexities as the business grows, and use AI to enhance analytics and insights.
• Streamlined processes - Simplifying and automating tasks such as information gathering, cash categorization, cash positioning, reporting, trends analysis and forecasting. This allows finance teams to focus on strategic activities rather than administrative duties, leading to better decision-making and more reliable forecasting. Additionally, reducing friction in cash flow management enhances the user experience, resulting in happier, more productive treasury teams.

The Problem with File-based Systems

Cash flow management has relied mostly on file-based systems for performing financial transactions and reporting activities. This often involves direct connections to banks using SFTP servers, with files being transferred daily or at intervals of several days. Legacy companies sometimes even resort to proprietary system access. Even the widely-used SWIFT network still operates on messages, which are basically file-based.

These systems are better than their predecessor - manual actions. They help make the process more efficient and provide better visibility and control.

However, these systems also create their own set of challenges for treasury teams.

• Setting up and maintaining file-based transactions is a complicated and manual process. It  requires specialized knowledge, cutting through red tape, overcoming cumbersome processes with multiple steps and stakeholders and constant upkeep.
• File-based connections lack modern security measures.
• Not all file formats are created equal. From MT940 to BAI2 to other formats, ingesting, aggregating and normalizing these data formats is a complicated and error-prone process.
• Files are delivered in bulk, meaning data is updated periodically rather than in real-time. This compromises the ability to make real-time decisions and have an accurate financial picture at any given time.
• Multiple file formats delivered at different times can compromise data quality.
• Data granularity is limited to the information sent in the file, rather than being enriched by a system.
• File-based systems lack the ability to scale, integrate with modern systems and evolve with technological advancements.
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Seamless data connectivity is the backbone of modern financial decision-making, enabling accurate, real-time insights that drive business success

Are APIs Enough?

Many financial teams use APIs provided by banks, payment processors, financial service providers, financial aggregators and other financial entities. These APIs are used to connect their own internal systems with these external services. APIs act as the intermediaries, enabling secure and standardized communication between different systems. With APIs, treasury teams can enhance operational efficiency and enable better financial management.

However, despite the advancements APIs enable, connecting via APIs still involves friction for treasury teams:

• Setting up API connectivity is cumbersome, manual and sometimes complex
• The provided data is not always standardized and therefore lacks a real-time view of the financial status
• The data arriving from the financial institution, may be lacking and missing, sometimes due to the way APIs were configured
• Not every bank or institution offers an API, and not all APIs are the same. While some are robust, fast, and easy to implement, accompanied by clear documentation, others lack any or all of these features. 

Modern Data Connectivity Systems

The next generation of connectivity comes with the new model data connectivity systems. These data connectivity systems leverage the advantages of each type of technology while adding on more layers of data, normalization and analysis.

Modern data connectivity systems include:

• File-based connections and APIs
• Additional host-to-host connections
• An additional layer of synthesis and analysis, presenting all financial information in a standardized and easy to consume format
• A real-time and rich picture of the financial status and health
• Modern integrations and technologies
• AI for better data quality

These capabilities reduce overhead, enhance data quality and support scale. They are also flexible enough to adapt to any future needs.

File-based vs. APIs vs Modern Data Connectivity: A Comparison Table

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Conclusion

Optimal and accurate cash flow management is essential for building and maintaining healthy treasury operations. Choosing the right technology ensures you always have an up-to-date view of your cash flow position, complete with insights for forecasting, without worrying about the overhead of adding data or security.

Learn more about Panax’s modern data connectivity technology here. 

Last Friday, CrowdStrike experienced a significant outage due to a flawed software update. This update caused widespread disruptions across various sectors, including airlines, banking, media, and telecommunications. The root cause was identified as a defect in a content update for Windows hosts, leading to system crashes and bootloops on millions of computers. CrowdStrike is now saying that an automatic restart for falcon will soon be available, which means faster recovery time.

Which Financial Institutions were Affected?

According to Downdetector, several major banks have been impacted by the outage, including Barclays, HSBC, Bank of America, Wells Fargo, and JP Morgan Chase. Not just banks were affected but also payment services like PayPal, Venmo and others were affected.  These disruptions have led to delays in processing payments, accessing banking services, and completing financial operations, affecting the banks' clients and causing significant operational challenges.

Implications for Companies

Companies that rely on these affected banks were facing potential disruptions in their financial transactions. This can lead to delays in payments such as cash flow, payroll processing, and other critical financial activities, which can impact business continuity and financial stability. There are some types of companies that are more vulnerable to payment delays than others, such as manufacturing and supply chain companies, retail and e-commerce businesses.

What Are the Suggested Contingency Plans?

To mitigate these impacts now and in the future, companies should consider the following contingency plans:

1. Alternative Banking Services: Establish relationships with secondary banks to ensure continued access to critical banking services.
2. Emergency Funds: Maintain a reserve of emergency funds to cover essential expenses like payroll and vendor payments during disruptions.
3. Communication: Keep stakeholders informed about the situation and expected delays in financial operations.
4. IT and Cybersecurity: Strengthen IT and cybersecurity measures to protect against secondary issues stemming from the outage.

Remember when SVB Collapsed? Is there a similar effect? 

Despite the differences in causes (CrowdStrike's outage was a technical failure, whereas SVB's collapse was a financial mismanagement event), the CrowdStrike outage shares similarities with the Silicon Valley Bank (SVB) collapse in terms of effect, as both caused disruption to financial services and created operational challenges. Both events also required immediate contingency planning. 

Conclusion

Once again, we witness things we never imagined could happen. For businesses navigating this challenging period, proactive planning and diversified financial strategies are essential to mitigate risks, including those that are unpredictable. Monitoring the status of critical service providers and having robust contingency plans in place can help manage the impacts of such unforeseen disruptions and maybe even recognize opportunities in them, As Zig Ziglar said: Expect the best, prepare for the worst,capitalize on what comes.

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Finance teams are required to forecast cash for multiple reasons:

• Staying ahead of upcoming inflows and outflows and preventing a potential short fall of cash 
• Identifying opportunities of excess cash that can be invested and gain interest 
• Contingencies/requirements from investors or banks

But despite the fact that forecasting is a critical tool in financial planning, many organizations struggle to get it right.

Common challenges include data inaccuracies, time-consuming manual processes, and the reliance on outdated methods. These issues can lead to unreliable forecasts, making it difficult for businesses to plan for the future, manage cash flow, and mitigate risks effectively.

Panax's forecast feature is designed to address these challenges head-on, providing businesses with a powerful tool to navigate their financial future with confidence.

Cash forecasting with the Panax platform

Panax’s forecast capability allows our customer to build a monthly forecast. The goal is to allow our customers to foresee their expected inflows and outflows and the expected balance, so they can maintain control and make data-driven decisions. The forecast can either be built at a company level or per entity and then aggregated to a company level.
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Why forecast with Panax? 

• Accuracy - Panax connects to all your banking data, providing an easy and automated way to base your forecast on historical data and future ERP data. This allows you to easily and more accurately plan future inflows and outflows.
• Automation - We generate the forecast automatically each month by rolling your forecast based on your input assumptions and updated actuals. 
• Bottom up and customized - We allow you to create forecast methods based on your knowledge of the cash flow. Each category can be configured per your understanding and adjusted to your needs.
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How Panax forecasting works

Initial setup

First, define a forecast method. This will determine how the forecast is populated. You can choose between a few different methods:

1. ERP-based - If you have an ERP connected to Panax, you can pull your expected invoices from the ERP and place the total amount as a forecast for the time period they apply to. You can then layer on additional forecast methods for the following months, from additional sources of data. 

2. Recurring amount - Input an amount that repeats monthly. You can also add a formula to increase/decrease the amount month-over-month.

For example, if your office and rent expenses are $120,000 you can input that amount. It will be populated throughout each month of the forecast for that category. 

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3. Based on historical data - By bringing in all your actuals, you can rely on the historical behavior of a certain category to build a forecast. This will be based on the average over a certain period, the growth rate over a certain period, or on your annual growth rate.

For example, if your sales are seasonal, you can build the forecast for your collectionsit to be based on the same month last year’s month sales + add a growth rate.

4. Based on data from another category - You can also rely on amounts from other categories, which means your forecast can be calculated as a % of that category. 

For example, if your shipping expenses are 3% of last month’s collection, you can add that method point to last month’s collection. Panax will populate the forecast for shipping, based on the forecast for collection.

5. Manual input - You can also manually define an expected amount per month and use that as you forecast. 

For example, if your marketing spend is based on a plan you receive from the marketing team, you can just input the spend manually per month.

Actuals vs. forecast 

When the month ends, we will automatically roll the forecast and create a new version that is based on the updated actuals. You will see an end-of-month summary that compares this current  month actuals vs. forecast: 

Based on this summary you can adjust and optimize your forecast for the following month. 

Reporting and analytics

Use the variance report to review what was forecasted for a specific month in a previous months version of the forecast vs. what you are forecasting now. For example, if in May your forecast showed the Closing balance in July to be at a certain amount and then in June the forecast was updated and now the closing balance for July shows a lower amount, you can drill down into the inflows and outflows to better understand what in the actuals / forecast was changed that caused that difference. 

By leveraging the variance report, you can:

1. Identify Discrepancies: Quickly pinpoint where and why discrepancies between forecasts occur, whether due to changes in revenue, expenses, or other financial factors.
2. Improve Accuracy: Use insights from the variance analysis to adjust your future forecasts, making them more accurate and reflective of real-world changes.
3. Enhance Decision-making: Gain a deeper understanding of your cash performance, allowing for more informed strategic decisions and proactive liquidity management.
4. Increase Accountability: Track and explain variances to stakeholders, ensuring transparency and accountability in your forecasting process.

Learn more about Panax forecasting and how automation can help you do your job better.

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