Payments modernization is underway. It’s being driven by emerging technologies such as artificial intelligence, real-time payments and data mining, which are helping companies with payments, reconcilements, cash forecasts, and other aspects critical to cash management.
“Given all the technological advancements that have been made in this area, it’s still incredible how many treasury departments are making and processing payments by checks and how much data is rekeyed from one system to another,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank.
He says getting from where things are today to where they’ll be in the future is going to take a lot of work.
Smart Business spoke with Altman about the effects that falling behind the financial technology curve can have on cash flow management.
What is it that tends to get in the way of efficient cash flow management in a treasury department?
Maximizing cash flow is a treasurer’s job. What gets in the way, though, is the disparate ways payments are made and what information from the source of payment looks like. Companies can spend a lot of time massaging data as it comes in from different sources to normalize it in the way they need to see it. That takes time and effort, which distracts from the core mission of maximizing cash flow. Inefficiencies lead to idle cash that doesn’t get invested, or over borrowing, which leads to unnecessary expenses.
Falling behind the technology curve can be costly. There are much better tools to manage the transaction processing activities and working capital of an organization. Companies that are still taking checks to deposit at a bank or putting checks in envelopes to make payments need to modernize their approach.
While there are tools that can be leveraged to help, treasurers often aren’t the decision maker who can make those investments. The CFO might be, but he or she is often concerned with the bigger picture and not the details. But not focusing on the details can obscure the bigger picture.
What steps should treasury departments take to address the issue?
Every task requires the right tool for the job. Treasurers should speak up and make the case to leverage the tools that are available in the marketplace. Take advantage of the investments banks and third-party providers have made to be as efficient as possible.
By leveraging relationships with banks and service providers, treasurers can stay educated on what’s available in the market and what is coming in the future. And it’s more than just using what the bank is offering. Treasurers can ask their financial institutions to connect them to other businesses that have similar challenges so they can network and understand best practices.
Tech used to be considered an enabler of efficiencies. More and more, it’s becoming a driver. Real-time payments and AI are really going to be driving efficiency in the industry. Companies will need to embrace that technology to stay competitive.
What does peak cash flow cycle management look like?
The best evidence that a company has reliable cash flow forecasting is the number of departments in the company that are using that forecast. If the treasury department is doing its job, it’s a financial center of excellence for the entire business. The more complex that business is, the more complex the tools will need to be to serve it. Businesses that are still using spreadsheets for cash flow management need to apply new tools.
In what ways can a bank help a treasury department?
Leading-edge banks developed many of the financial management tools that companies use and all banks continue to invest in technology. Businesses should take advantage of the investments that have been made because it’s too expensive for many businesses to do on their own.
The world is changing rapidly. Companies might not be able to get ahead of the tech curve, but they need to see the curve coming up in front of them to remain efficient and maximize value.
Insights Banking & Finance is brought to you by Huntington Bank
