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7 Cash Management Trends for 2022
16-02-2022 | treasuryXL | Nomentia | LinkedIn |
While the show must go on and treasury and finance teams had a busy life at the start of the year, it’s time to take a look at the ever rapidly changing cash management trends of 2022.
While PWC has predicted that the top priorities for CFOs in 2022 will be advanced cash and liquidity management, technology and digital innovation, fraud and cybersecurity, and business partnering, we also internally discussed what trends we see emerging during the new year.
1. Digitalization of the processes continues
A year ago, this time, we commissioned a Forrester study, ‘Successful Businesses Excel At Cash Management’, to discover how top decision-makers see the state of cash management. We were ready for some interesting findings but what we found was even more interesting than what we expected.
Clearly, during the past years, a lot has changed as finance and treasury teams had to adjust to the new reality that the global pandemic has brought on all of us. While digitalization has been on the agenda of everybody for some time, it’s been time to speed up the transformation.
While the digital transformation has started in many enterprises already years ago, the work continues to reap the benefits of cloud-based cash and treasury management technology to improve organizational flexibility, cash management processes, and security.
Better digitalized processes do not only make the life of employees easier, but companies can also untap hidden cash, inject accurate forecasting into decision making while improving their day-to-day treasury and finance operations with automation.
While last year enabling home working and ensuring business continuity was a significant driver, for sure, we are moving towards a world where the next items on the cash management wish list will climb up the priority ladder.
2. Payment solution for cash flow efficiency
Payments are the core of every business process, but compliance is often the main driver for many to improve existing processes. It’s often the same when companies adopt a payment tool for their global payments to improve the efficiency of their global B2B payments. Having a single tool allows more control over how payments are processed, approved, and released to the banks.
Payment efficiency is also the first step for many other cash management priorities, such as better liquidity management and cash visibility
In the process of setting up a payment solution, the hardest part of working with ERPs, existing TMS, and multiple banks is also tackled and can be utilized for implementing new solutions along the way.
Adapting a tool for payment tool can also make centralized user rights management easier.
3. Security is an unavoidable topic
When we are talking about payments, we must discuss security. During last year, financial fraud cases have been making headlines globally. For compliance, organizations must have the basic security measures in place, but finance and treasury are departments that need more advanced risk mitigation capabilities to tackle financial crime and fraudulent attempts to safeguard the company’s funds and financial stability. To tackle security concerns, partnering up with the information security team and finding the right vendors can provide you with the necessary precautions.
Companies are starting to utilize artificial intelligence and machine learning for catching suspicious fraudulent activity or to spot manual errors.
As all companies could be subject to financial crime, investing in fraud prevention should be a no-brainer. It’s almost like insurance for minimizing the risk of an actual incident.
4. Outsourcing bank connectivity
You will rarely meet someone that would say that bank connectivity is not a challenge. Yet, it’s something that everybody must have in place. In the Forrester study, 76% of the respondents believed that bank connectivity for fetching statements and intraday material is valuable for their treasury and cash management activities.
Connecting to banks is a challenge due to the different communication protocols and file formats. When banks make changes on their end, the existing connectivity should reflect on that too.
This is only part of the challenge. On the other end, there should be a connection to ERP systems (like SAP or other) or to a TMS to fetch all the accounts payable data instantly. This requires working with another communication protocol and another data format.
Between the two different data formats, there must be a data mapping to make sure that the communication between the bank and the organization works flawlessly.
It is challenging enough to set up a bank connection with a single bank. Imagine doing this process with multiple banks
That’s why most organizations are opting for bank connectivity as a service where companies like Nomentia have already over 10 800 bank connections established and expertise to take care of the rest.
Ps.: We have also created a cool video on how easy it can be to outsource the management of your bank connections:
5. We are saying goodbye to spreadsheets
Let’s be honest, cash forecasting with excel is challenging:
Two of the main reasons that are holding back companies from purchasing a solution for liquidity management is the cost and the perception that it’s easy to create cash flow forecasts with spreadsheets and that is how it’s been always done. However, the trend is shifting and more companies start to realize that an actual liquidity management tool would have more benefits.
Using a tool for liquidity makes collecting forecasts and actuals automated and the data can be collected from multiple source systems to help to understand the organization’s current, past, and future liquidity positions to optimize cash flows and FX positions to optimize internal and external funding.
Liquidity management software today is extremely user-friendly and intuitive to use so that users can create reports easily to create accurate reports.
6. Reconciliation for all
Comparing bank statements against your accounting to make sure the amounts match each other is not too difficult for small firms where their clients and cash flows come from fewer sources and banks. In enterprises, reconciliation may not be so straightforward. In our Forrester survey, 61% of decision-makers say it’s challenging or very challenging to reconcile payments.
Thus, we expect that automation of the reconciliation process will be the star of 2022 so that organizations can streamline the process for faster month-end closing.
7. Alignment between treasury, finance, and IT
According to finance executives, the lack of alignment is the top barrier to better cash management. This is something that at Nomentia we’ve been experiencing firsthand. In a recent interview with TMI, Jukka Sallinen, Nomentia’s CEO said the following:
“Lack of collaboration between different functions within the organization is one of the significant hurdles. There should be more roadmapping and alignment between treasury, finance, and IT. Many solutions provided by software vendors have grown into do-it-all monolithic systems. That, unfortunately, often leads them to be mediocre at best and none of the three departments is entirely happy to work with them. In addition, while there has been lots of talk about open banking and standardization to improve the efficiency of cash management processes, most of these promises have remained unfulfilled.
I believe treasurers want more flexible and fast solutions that can solve their specific challenges and integrate well with their core treasury management system (TMS) and other systems. While it is obviously everyone’s responsibility to look at the big picture, maintaining the growing number of systems and surveying the providers’ landscape is often left to IT. Greater collaboration would be preferable.”
Setting up new solutions, bank connections, or improving security requires cooperation between the different stakeholders and in 2022 they will need to strengthen their alliance for actualizing the strategic benefits of cash management.
Cash Management tools are becoming more democratic
Cash management solutions becoming more accessible for businesses of all sizes. As it’s time to digitalize treasury and finance, there are affordable options available for anybody for all the solutions mentioned above. A payment factory, liquidity management, or reconciliation can be easily implemented for a fair price tag in almost any business. The trend has been moving from one-size-fits-all solutions to a hyper-modular approach: you take the solution that you need and integrate it into your existing solution stack so that you can pick the best solutions from different vendors.
Of course, implementation of new cash management solutions will require cooperation and alignment between different departments, prioritization, as well as finding the right strategic vendor that can support the organization’s finance and treasury roadmap.
The four expectations of Currency Management Automation
14-02-2022 | treasuryXL | Kantox | LinkedIn |
With FX volatility intensifying and exposing companies to even greater currency risk, treasurers & CFOs are faced with many challenges as they look to step up their FX risk management strategy. The key to this is currency management automation, but what are the critical problems an automated solution needs to solve to become a worthwhile tool in your treasury kit?
Click on the image above for the corresponding episode of CurrencyCast
The four main expectations of currency management automation for CFOs and treasurers are:
Challenge 1: Improving time management
According to the 2021 HSBC Corporate Risk Management survey, 55% of treasurers say FX risk management takes up most of their time; and 44% find that automation frees up time. Throughout the FX workflow, members of the finance team manually execute many tasks. These are repetitive, time-consuming and add little value. The French have a wonderful expression to define those tasks: they call them chronophage — literally, they eat away your time. With more time at their disposal, treasurers could focus on more value-adding activities, such as improving and fine-tuning their forecasts.
Challenge 2: Removing operational risks
Throughout the FX workflow, operational risk is omnipresent. Operational risk is the risk that inadequate or failed internal processes can pose to your business. Take spreadsheet risk. From the moment an FX rate is sourced for pricing purposes to the budgeting process, and all the way to the cash flow moment of the post-trade phase, dozens, hundreds, perhaps thousands of spreadsheets circulate across the enterprise, magnifying the risk of manual data input error.
A recent Citi Corporate Treasury survey showed that 80% of FX risk managers remain reliant on Microsoft Excel. In our conversations with CFOs and treasurers, we noted that often, a handful of people or even sometimes a single individual is in charge of executing most –if not all– the tasks of FX risk management across the entire enterprise. These enterprises can often comprise of subsidiaries, each with its own set of currency pairs. This is the very definition of key person risk.
Taken together, spreadsheet risk and key-person risk are part of operational risks that can cause serious damage to your FX risk management strategy.
Challenge 3: Improving the efficiency of treasury operations
According to this same Citi Corporate Treasury survey, efficiency gains in treasury is the number one expectation of technology. There is a myriad of ways in which the efficiency of treasury operations can be improved in FX risk management.
Consider most Treasury Management Systems (TMS) shortcomings, even those with FX capabilities. Looking at the FX workflow, most TMS are incapable of proactively helping risk managers execute their tasks. Why though?
(a) They lack a robust rate feeder that allows the business to price with the forward rate when forward points are in favour or ‘against’.
(b) They are adequate for balance sheet hedging, but they fail to capture the type of exposure needed in cash flow hedging (e.g. forecasted exposure for individual campaigns/budget periods in static hedging; forecasted exposures for sets of campaigns/budget periods linked together for layered hedging etc. ),
(c) They lack the level of automation –during the cash flow moment of the post-trade phase of a hedging program– needed to efficiently handle the adjustment of hedges to the underlying cash flows.
Challenge 4: The need to make a strategic contribution in terms of enhancing value
HSBC’s survey showed that only 23% of treasurers see themselves as ‘best-in-class’ when it comes to FX hedging. With FX risk firmly under control thanks to a family of automated hedging programs and combinations of hedging programs, CFOs and treasurers would be in a position to:
(a) Diminish the variability of corporate performance
(b) Secure and enhance operating profit margins
(c) Improve the competitive position of the firm
(d) Make more efficient use of invested capital by boosting the sales/capital ratio and by minimising the amount of capital that needs to be set aside for collateral and margin requirements
Improving time management and removing operational risks are the most visible, the most tangible expectations of currency management automation, but they might not be the most important ones. Much more important for your company is to be in a position to improve the efficiency of Treasury operations and to make a strategic contribution towards enhancing the value of the firm.
Digital rules (URDTT) for Trade Finance: Episode 2
10-02-2022 | Wim Kok | treasuryXL | LinkedIn |
Episode 2 of our series of educational videos is now available. Please take a look and let me know what you think. Episode 1 is, of course, still available on our YouTube channel.
Trade Advisory Network Limited and treasuryXL Trade Finance experts launched their second episode of a series of free, educational videos on URDTT. There will be 6 episodes in total covering all aspects of the development, interpretation, and application of URDTT in the context of a digital trade strategy. In the upcoming months, you can expect one educational video per month.
What can you expect in the second episode?
Episode 2 of this series of videos focuses on URDTT (Uniform Rules for Digital Trade Transactions). Subsequent episodes will focus on the use of electronic records, payment obligations and, the role of banks/non-bank financial service providers.
Duration: 11.38 min
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Enjoy, explore and develop!
Interested to know more about this topic and the upcoming educational videos? Contact our Expert Wim Kok.
Wim Kok
International Business Consultant
Trade Finance Specialist