How much cash does your business have right now, and is there enough to cover all your financial obligations in the next day, week, and month? Also, how much working capital and yield benefits could your company unlock if you were to manage your suppliers more tightly, including payment terms, methods and overall accounts payable processing in conjunction with your current and projected cash positions?
In a tightening global economy, possibly edging closer to a recession, answering these questions may be critical to an organisation’s survival. As such, most FP&A professionals today are focused on ensuring their companies are prepared for any macro disruptions. This requires finance teams to have a single source of truth regarding their current cash position, upcoming spend, and insight into whether they are maximising payment terms with suppliers each month, to better manage available liquidity – something most organisations fail to do effectively.
Cash managers and treasurers usually start by examining bank accounts and assets. But using disjointed systems or manual processes soon leads to errors. In fact, three out of every four companies in Coupa’s IPO readiness survey revealed that they need to log into multiple systems to identify cash on hand, with nearly a third admitting they need to log into more than four different systems.
This complexity is compounded by a lack of collaboration within most companies. Historically, treasury, accounts payable, and procurement have had minimal collaboration with one another. This problem is still quite common in many companies today where functions operate in silos and with their own mandates.
Treasury, for example, ensures the company meets its financial obligations while ensuring no bank accounts are overdrawn. Accounts payable (AP) and accounts receivable (AR) tend to take a backward-looking and transactional approach to spend management. Meanwhile, procurement is focused on negotiating goods and services at the lowest possible cost, while choosing from a variety of possible suppliers to provide those goods and services. It’s no wonder that collaboration between these three functions is rarely effective.
Such decentralisation across divisions creates a plethora of manual procedures and incompatibilities between different processes, systems, and formats – making cash management and liquidity planning a major challenge for treasurers and cash management teams. These operational silos create blind spots that provide cash managers with limited visibility, leading to risks such as generating inaccurate cash forecasts, failing to optimise working capital, not taking advantage of credit card programmes, paying too early, and incurring unnecessary fees related to late payments.
At the same time, finance leaders are under increasing pressure to do more with less — including unlocking capital trapped across a business and trying to control costs with surgical precision. So, what can be done to break down these silos and help professionals with this?
The key step to achieving this reality is to unify treasury, AP and procurement on the same platform, allowing for better communication and data information sharing. This will allow AP and treasury teams to rely less on having to juggle across multiple systems to do their jobs.
A Business Spend Management (BSM) platform can provide an organisation with a single source of truth into its current financial situation by tracking all supplier payment terms, invoices pending approval, invoice payment methods available per supplier, approved invoices, in-flight payments, and current cash positions.
For instance, by combining treasury data with approved PO and invoice data, treasurers and cash managers can obtain greater visibility into their company’s spend, which is fundamental to improving how they manage liquidity. In real time, treasurers can see which payments are approaching and which have already been committed.
In addition, an AP team can make appropriate decisions on when to pay certain large invoices, based on the liquidity position of the company, instead of the treasury team having to respond to large payments triggered by AP without any forward advice.
Armed with these insights, and working in conjunction with procurement and AP, corporate treasurers and cash managers can forecast their cash position more accurately and keep their cost of capital down. This prevents the need to liquidate assets on short notice or borrow at higher costs than necessary to meet financial obligations.
By using a BSM platform to provide a single, digitised source of financial truth, companies can create forecasts and liquidity plans faster and more accurately. Plus, by breaking down silos and sharing data, finance teams can become better business partners, providing other departments with vital data that helps everyone solve tomorrow’s challenges together, today.
Tamir Shafer is vice president, Global Coupa Pay & Treasury at Coupa