Monographic

Cash management - Importance of cash position control and cash flow forecasting

13 Jul 2023. 21:06
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  • SME maturity
    All
    Topic
    1. Comercio electrónico
    Scope to digitize
    1. Support processes

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Do you want to know how to face the challenges of your business' treasury? In this monograph, we provide you with all the information you need to know.

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Executive summary

Proper treasury management should be one of the main points of interest and focus of any business, as optimal management allows a good balance to be achieved, on the one hand, to ensure sufficient liquidity and, on the other hand, to invest the surplus obtained for the business to evolve and become more prosperous.  

Given that any business lives in a changing environment, there are several events that make treasury management difficult, such as unexpected events, regulatory changes or liquidity shortages at specific times, among others.  In order to meet these challenges and improve management, a number of practices can be implemented, such as collection control, payment management, bank negotiation or the creation of a treasury budget. Among all these practices, cash flow forecasting, which consists of predicting the company's future liquidity needs, is of particular importance.  

All these practices, alongside others mentioned in the monograph, can be carried out using specialised software, with which the company can automate many tasks, thus reducing work time. 

Given the importance of a good cash flow forecast to guarantee the liquidity of the business, two applicable methodologies are covered: on the one hand, the bottom-up model, and on the other, the use of the balance sheet and profit and loss statements to forecast cash flow. Regardless of the model chosen, the three dimensions of cash flow should be analysed: operational, investment and financing. To improve forecasting, it is recommended to focus on the operational dimension with a multidisciplinary approach.  

In this way, good treasury management and cash flow forecasting ensures visibility, liquidity, planning, risk control and task optimisation for the company. In addition, the use of software offers many other advantages, such as increased accuracy, automation, scenario analysis and reduced effort. 

In this monograph, several examples of specialised software are developed. In addition, some cases of uses derived from the implementation of specialised software and the use of advanced analytics are detailed, including cash flow forecasting, cash position and optimisation, budget monitoring and root cause analysis. 

In short, technology is advancing at the service of companies in almost every field. Being able to benefit as a freelancer or SME from tools that facilitate better management of such an important part of a company's treasury is a great opportunity. It allows you to invest in the security of your company, to avoid unwanted risks that could put an end to a prosperous business and to invest in its growth with an optimal investment of assets, considering the necessary balance of liquidity. 

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