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Achieving cash visibility and cash positioning without a TMS

  • 1.  Achieving cash visibility and cash positioning without a TMS

    Posted 10-02-2023 15:30

    Hi Everyone,

    My name is Lay Fong Vong and I am the Senior Treasury Manager at Vena. I am excited to be part of  #ExpertExchange. I look forward to connecting with my fellow Treasurers here on Vena Forum! In this post, let's chat about the challenges in Treasury Cash Management, how to better see and position your cash, and discover simple practices and tools to improve your financial operations and adapt to market changes. This could be a helpful conversation for companies looking to build a Treasury department.

    I would love to hear from you. Which of the best practices mentioned have you implemented in your organization, and what were the outcomes?

    Navigating challenges in Treasury Cash Management:

    Treasury cash management represents a specialized domain and a critical function in financial operations. It involves managing an organization's cash flow, liquidity and assets to ensure there is sufficient cash on hand to meet short-term operational needs while optimizing returns on idle cash. Several common challenges are associated with daily treasury cash management. Large corporations address these challenges by relying on a treasury management system (TMS). However, the integration of such advanced fintech solutions can entail substantial investments.

    Challenge 1: Achieving cash visibility and cash positioning without a TMS.

    Attaining a real-time and comprehensive view of cash positions across multiple accounts, subsidiaries and geographies can be complex. This lack of visibility can lead to inefficiencies and cash imbalances.  It involves accurately tracking cash flows, cash balances and liquidity on a daily basis. Having better cash visibility without using a TMS can be challenging but feasible. Such companies would likely rely need to rely on a combination of manual processes and spreadsheets to consolidate, track and manage cash. 

    Here are some best practices for treasury cash management:

    1. Centralize Banking Relationships:

    Centralize the company's banking relationship and accounts where possible to simplify cash management. Implement efficient cash concentration or pooling techniques to consolidate funds from various accounts into a central account. It can also be done manually by physically transferring funds between accounts, to optimize cash balances.

    1. Bank Account Rationalization:

    Review and evaluate the necessity of all existing bank accounts. Close redundant or unused accounts to streamline treasury operations.

    1. Rigorous Bank Reconciliation:

    Undertake daily bank reconciliation of all bank accounts to ensure that recorded cash transactions match bank statements. This process helps identify discrepancies and errors. Support from the finance team is crucial. Each team member needs to understand the role they play and the impact and importance of bank reconciliation.

    1. Data integration and aggregation:

    Complete the basic integrations and aggregate financial data from various sources, including bank accounts, payment processor and accounting systems. 

    1. Analytical Review of Bank Statements:

    Perform a daily review of online bank statements and reports to summarize daily cash positions, transactions and liquidity metrics. It can be tracked by business, by currency and on a consolidated basis using a spreadsheet. Plugging the cash position over time on a chart is a good way to understand a company's cash cycle and trend.

    1. Liquidity Threshold Definitions:

    Define what the company's liquidity threshold is and establish steps for addressing situations where cash levels fall below predetermined minimums.

    1. Accurate Cash Flow Projections:

    Develop and maintain accurate short term cash flow forecasts to project daily cash positions and anticipate cash needs. Closely collaborate with your FP&A and business operations teams to gather relevant data and insights. Closely work with AR, AP, Payroll & taxation teams to track collection and payment forecast. Regularly analyze historical data to identify trends and patterns to refine forecast. 

    1. Invest in Human Capital:

    Invest in training and development of treasury staff and encourage culture of continuous improvement and innovation in cash management practices.

    1. Exploration of Cost-Effective Solutions:

    Explore affordable, cloud based financial software that may offer some of the functionality of a TMS without the full complexity and cost.

    1. Leveraging Banking Partners:

    Engage with banking partners to leverage their expertise, discuss cash management strategies, and explore new opportunities.

    By following this framework and leveraging technology and automation whenever possible, companies can establish and maintain daily cash visibility, enabling them to make informed decisions, optimize cash flow and respond effectively to changing market condition. However, it is imperative to acknowledge the absence of one-size-fits-all solutions. Effective cash management is contingent upon the dynamic of each business depends on the predictability of cash inflows and outflows, organizational maturity, market conditions and risk tolerance of management. 

    For further insights or clarifications, please do not hesitate to get in touch!

    Layfong Vong
    Manager, Treasury & Account Payable
    Vena Solutions Inc