Businesses — from startups to corporates — need cash to be successful, but they also need to know how to manage it well.
Cashflow management, or the total amount of money flowing in and out of a business, isn’t the most exciting topic, but managing cash properly for wages, bills and investing in product is critical to growth.
“Cashflow is the lifeblood of a company, and should drive the business and decision making,” says Jörg Wiemer, CSO and cofounder of corporate payment platform TIS. “Without the ability to manage and optimise payments and cashflow data, companies won’t be able to grow, innovate or reach profitability."
As your company grows, managing payments processes can become increasingly complex. Here are some of the key issues businesses often come up against — and how to solve them.
1. Don’t neglect outbound payments
Many businesses invest heavily on improving their inbound payments — in other words, how they get paid by their customers. This means that by investing in products or services to enhance their customer payment experience, they hope to increase those payments — and make more money.
Clearly without liquidity, there is no business. Without properly managing outbound payments and cashflow data, liquidity cannot be put to best use.
This is great in theory, but Wiemer says inbound payments shouldn’t be the only priority. Liquidity — cash, or assets that can be converted into cash — is really only useful when businesses regulate cash going out, so businesses should focus on making sure they’re recording and analysing outbound payments as much as inbound.
“The attention on inbound cashflow has led to less focus on the other side of the equation,” says Wiemer. “Clearly without liquidity, there is no business. Without properly managing outbound payments and cashflow data, liquidity cannot be put to best use.”
Outbound cashflows for daily operations or investing in your product, for example, are crucial for evaluating your company’s performance. The speed at which today’s inbound and outbound transactions happen make this a challenge, but Wiemer says finding the right tools to give you a “holistic” view of your cashflow is key.
2. Not all tools are the right tools
There’s more. As departments, banks and payment systems aren’t usually optimised to work together, growing businesses can often find themselves wasting time and money.
“Companies often use a host of different ebanking tools,” says Wiemer. “These use a significant slice of IT resources.”
To remedy this, Wiemer suggests investing in financial technology such as the TIS Enterprise Payments Optimisation (EPO) platform. EPO hosts a variety of applications all on one platform, streamlining and standardising payment processes and ridding your workflow of time-sapping “complexities.”
“A company needs to find a solutions provider to remove complexity, or a partner to outsource this complexity to,” he says, adding the right tool can provide a “360-degree view” of a business — a potential foundation for further improvements.
3. Without transparency, you may be at risk of fraud
The right payment tool can also help businesses increase transparency, making it easier to detect and defend against fraud, which cost consumers and businesses $56bn in 2020 alone.
All of this is creating a breeding ground for incorrect assumptions, wrong decisions and consequently a high risk for fraud.
In many growing businesses, “there’s a lack of visibility as well as control,” says Wiemer. “All of this is creating a breeding ground for incorrect assumptions, wrong decisions and consequently a high risk for fraud."
Wiemer says a common source of payment fraud is the use of fake invoices — and a chaotic cashflow management style can make these very hard to spot.
“The perpetrator sends an invoice that looks authentic, but the account data has been changed,” he says. “If payment controls are not applied uniformly and automatically across a company, the department initiating the payment may not detect ‘the switch.’”
Many cashflow management tools, like TIS, use AI and data sharing to boost fraud prevention.
For example, TIS has a community screening feature, called TIS Payee Community Screening. If a business tries to make a payment to a supplier who hasn’t been used in the TIS customer community within the past five years, they’ll be sent a message alerting them to a potential issue.
“This community screening can significantly reduce a company’s payment risk tied to invoice fraud,” says Wiemer.
4. Find a solution tailored to your business’s needs
All businesses are different, meaning each business’s cashflows will be different too.
For Wiemer, it’s important TIS tailors to their customer’s requirements, rather than trying to create a ‘one-size-fits-all’ software solution.
“Every organisation is at a different stage of maturity,” says Wiemer. “The ‘TIS’ approach is to look at a client’s payment processes individually, and map each one.”
The only way an enterprise can efficiently and effectively manage their cashflows is with full transparency.
This approach should not stop once a cashflow solution is implemented, adds Wiemer. Businesses should continuously evaluate their needs, across all departments, regions and countries, and adapt their internal processes accordingly.
“The only way an enterprise can efficiently and effectively manage their cashflows is with full transparency,” he says. “This must go beyond the department or local subsidiary level and include the company globally.”