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. 

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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Excel is the world’s most popular spreadsheet, among both individuals and companies. Finance teams in particular rely on Excel for a variety of tasks, many considering it a vital accounting and finance tool. This is primarily due to its flexibility, availability, and, let’s be honest, because it has been ingrained in finance work practices for decades.

However, Excel also presents challenges, like complexity, inability to collaborate and it being error-prone. This dual sentiment towards Excel has resulted in what has become known as the finance “Love/Hate Relationship”.

Let’s dive deeper into the reasons underscoring this relationship, what finance teams should look out for when working with Excel and when should they consider complementary solutions.

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Advantages of Using Excel

Finance teams love Excel. Here’s why:

• Versatility and flexibility - At its core, Excel is a versatile and flexible solution, and that’s the biggest benefit it offers to finance and treasury management. Excel's functionalities (see below) allow finance teams to perform any task they need, in a way that is customized to their liking. This includes financial modeling, budgeting, forecasting, data analysis and more.
• Built-in functionalities: Excel provides multiple functionalities that finance teams need for their roles, like formulas, pivot tables, charts and more. These can be created fairly simply, allowing for cash management and predictions.
• Robustness - Excel supports more than millions of lines of data. This means businesses, including global organizations, can easily manage all their needs inside.
• Direct accessibility to data - Excel allows finance teams to do what they love best - touching and feeling the data. They can slide and dice the numbers in multiple, versatile ways, to explore new possibilities and identify new solutions.
• Availability - Excel usage is so high simply because it’s included in every Microsoft Office license. This makes it accessible and available to finance teams everywhere, without having to look around for other solutions. In addition, its ubiquitous use means that finance professionals transitioning to new companies do not have to go through platform onboarding (though they will need training on the new team’s specific excel layout and formulas).
• Cost - For those already using Microsoft Office, there is no additional cost incurred. This, as we all know, makes it a finance-favorite

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Disadvantages of Using Excel

However, Excel also poses challenges for finance teams. For example:

• Error-prone - One of the most significant issues in Excel is the error-prone nature of manual data entry and formula setting. A simple mistake, like a misplaced decimal or an incorrect range in a formula, can result in monumental errors, affecting financial statements and strategic decisions. 
• Cost of a mistake - A solution that is error-prone should be considered in light of the cost of being misleading or misinformed about the cash position. The likelihood of errors when copying data manually is higher, which may result in poor decisions when managing cash. Being unable to pay salaries or make vendor payments, losing funds or "parking" them in low-return channels for too long are all caused by bad-decision making that come with a high price. In every company, the cost of error is different, but without full visibility, these errors are not only more likely to occur but also take longer to discover. 
• Complexity - Financial models in Excel are becoming more complex, with data being collected across tabs and formulas. This information maze makes the Excel difficult to navigate, audit, update, validate, track and version. Such uncertainty can lead to a lack of trust in the data, especially when significant decisions rely on these models.
• Time-consuming - Manually entering data in excel takes time. This could include adding bank statements from multiple bank accounts and often multiple banks, inputting information from suppliers, gathering information from multiple global entities in different currencies and more. The more complex the spreadsheet, the longer it takes. 
• Collaboration obstacles - Excel’s cannot be worked on together in real-time, making collaboration and version control a significant challenge. When decisions need to be made quickly, based on the most current data and from a variety of data sources, Excel's traditionally single-user focus can be a bottleneck.

For example, if you have 10 different departments, all with their own versions, CFOs are required to wade through the various versions to compile a total financial picture. Multiple versions of the same file make it difficult to track and explain the changes between the different versions.

• No real-time picture of data - Collaboration obstacles also make it challenging to obtain a real-time, reliable picture of the data and cash flow. Having to manually data from different Excel versions and accounts means that the data is only as updated as the last manual entry. This makes it difficult to make real-time decisions and slows down strategic decision-making as well.
• Takes time to master: New users can easily create basic spreadsheets and produce new charts and graphs. But if you need to use macros, pivot tables or complicated formulas, expect a very steep learning curve.
• No integrations or automations - Excel cannot be integrated with data from other departments or with external platforms to get insights and make decisions. This makes the work repetitive, error-prone and inconsistent

While Excel offers versatility in financial tasks, its limitations in handling complex data and collaboration can lead to inefficiencies and increased risk of errors

Excel Alternatives

Excel can be used by finance teams until the finance operation becomes complicated at a certain point in a company's lifecycle. At that point, automated treasury solutions either can help address Excel’s shortcomings or replace it: the potential errors, complexities, the need to collaborate among global local teams, the unnecessary time spent manually entering data, lack of real-time visibility, the complex onboarding to existing formulas and lack of integrations and automation.

An automated treasury or cash flow management tool provides visibility, increases capital efficiency and gives finance teams full control. With automated treasury management solutions, finance teams can automatically:

• Manage liquidity, invest excess cash, minimize debt, and eliminate unnecessary costs.
• Foresee cash needs, identify trends and anomalies, and be prepared for different scenarios.
• Get Al-driven cash insights and trends and eliminate the need for unnecessary, error- prone spreadsheets.

Automated tools are capable of covering their cost and more, by increasing ROI on existing cash, optimizing debt management, reducing errors and frauds and maximizing productivity. Learn more here.‍