Treasury management is an undisputed cornerstone of corporate finance. Not only is it crucial to ensuring the financial survival and growth of companies, but its complex management and absolute necessity have also led to a multitude of challenges faced by entrepreneurs. One of these major difficulties lies in the predictability of incoming cash.
Today, we will dive into the heart of this issue and explore the methods that allow you to overcome these obstacles.
What is treasury management?
To understand how to improve incoming cash visibility, it is essential to grasp the basics of treasury management. In simple terms, treasury management concerns the planning, management, and control of money flowing in and out of a company. The ultimate goal is to ensure the company always has enough liquidity to cover its current expenses while maximizing its revenue.
Cash flow comprises three main components:
- operating cash flow (from the company's main activities)
- investing cash flow (from purchases and sales of long-term assets)
- financing cash flow (from financing activities such as the issuance of shares or debt).
Why is incoming cash visibility a major challenge?
Strategic stakes
Visibility on incoming cash enables better strategic planning. If a company has a good idea of the liquidity owed to it and when it can expect to receive it, it can more effectively plan its investments and expansion.
In addition, clear visibility on incoming cash can help avoid treasury crises. By knowing when money is coming in, a company can ensure it has enough liquidity to pay current expenses. This can help avoid tricky situations, such as having to borrow money short-term at high interest rates or, worse, having to delay payments to suppliers or staff.
Operational stakes
At the operational level, visibility on incoming cash can help optimize working capital management. For example, if a company knows it will receive an important payment from a customer on a certain date, it can plan its expenses accordingly to reduce the need for external financing.
In addition, better visibility on incoming cash can facilitate supplier relationship management. If a company knows when it will receive payments from its customers, it can better plan its payments to suppliers, which can help strengthen relationships with them.
Financial stakes
On the financial side, better visibility on incoming cash can help improve the company's financial performance. It can allow the company to maximize its use of available liquidity, which can lead to a better return on equity.
In addition, better visibility on incoming cash can help improve the company's solvency. If a company has a good idea of its future cash flows, it can be better positioned to meet its short-term financial obligations, which can help improve its credit rating and reduce its borrowing costs.
Why is this visibility nonexistent today?
Most of the time, invoicing exchanges with customers happen by email. It is truly a message in a bottle that is sent, without really knowing what is happening on the customer's side and when payment will arrive. These uncertainties can lead to difficulties in managing working capital, that is, the amount needed to finance a company's operating cycle.
Poor working capital management can lead to treasury problems and even lead to bankruptcy. It is therefore crucial to have good control over incoming cash.
Solutions to improve incoming cash visibility
1. Use treasury management software
One of the most effective ways to increase incoming cash visibility is to use treasury management software. These tools can automate the tracking of invoices, payments, debts, and receivables. They can also help forecast future cash flows based on historical data, which can help identify trends and anticipate problems before they occur.
2. Encourage rapid payments
Adopting policies that encourage customers to pay quickly can also help improve incoming cash visibility. For example, you can offer discounts for early payments or impose penalties for late payments.
3. Implement an automated reminder system
Automating the reminder process can help ensure that customers receive regular reminders about their due invoices. This can increase the chances of timely payment and improve incoming cash visibility.
4. Strengthen your relationship with customers
Cultivating a good relationship with your customers can help you better understand their payment behaviors and anticipate their actions. It can also increase the chances that they will respect their payment commitments, thus improving incoming cash predictability.
Effective treasury management is an ongoing mission for any company concerned about its sustainability and growth. By implementing appropriate solutions to increase incoming cash visibility, you can optimize your treasury management and ensure the financial health of your company. Remember that every company is unique and what works for one company may not work for another. It is therefore important to customize these solutions based on the specific needs of your company.
Remember that treasury management is not an isolated task, but an integrated component of all your company operations. Improving incoming cash visibility is only part of the equation. Effective treasury management involves strategic planning, careful management, and meticulous control of all facets of your company's cash flows.
Flowie: the solution to help you gain visibility on your incoming cash
Flowie is a tool that facilitates the management of your accounts payable and receivable. You find in one place an overview of all your sent invoices with their status, which is updated in real time. You receive a notification as soon as an action is performed on an invoice.
For example, you are informed when your customers schedule their payments. This allows you to better anticipate your incoming cash flow and adjust your treasury management accordingly.
Flowie also facilitates access to invoicing data via an open API. You can retrieve the data to use it in your own management tools according to your needs.
This solution is intended for all companies that want to improve visibility on their incoming cash, simplify invoice management, and effectively use invoicing data.