Navigating cash and treasury: 2. Generate cash positioning

Are you reducing idle cash while reducing risks?

Today, financial services organizations are more focused on what’s necessary to safeguard business continuity and solvency. Much of this begins with greater visibility and reliability of key data to help drive your critical business decisions, especially during critical market changes.

Our current blog series is reviewing cash and treasury best practices you can follow to prepare for instant payment changes and build true cash visibility. Last week we looked at understanding the impact of instant payments. In part two this week, we focus on generating cash positioning.

Consideration #2: Generate cash positioning

To satisfy both operational and regulatory requirements, financial services organizations need operating models for cash and liquidity management. To achieve and maintain this capability successfully, organizations need to focus on gaining greater visibility into their cash and liquidity.

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Cash and treasury: Prepare for instant payments and build true cash visibility

Effective cash positioning provides predictive views into a company’s cash position at any moment in the current and coming hour(s) and day(s) by consolidating multiple sources and matching actuals to forecasts (replacing “old” data in real time or near-real-time) to speed up daily reconciliation. This also helps deploy cash throughout an organization more quickly and accurately.

Effective cash positioning reduces idle cash and creates opportunities to earn immediate yield, while minimizing the risks to which that cash is exposed. Building cash positions typically involve combining data from these sources: prior-day balance, intraday bank reporting, expected payables and receivables, and open treasury transactions.

Maintaining and reconciling cash position

After the initial step of building the cash position, it’s necessary to maintain and reconcile it. Maintaining the cash position requires updating and replacing cash-flow data with more recent and accurate information via intraday updates from internal systems and banks. Reconciling the cash position involves matching the actuals to forecast flows, which is often done first thing in the morning as a part of typical treasury processes. Reconciliation helps identify and understand the unexpected.

For example, if a transaction didn’t occur yesterday then it may occur today; the unreconciled variance then must be rolled into the current day’s position.

For many organizations, this process can be time consuming. Rules-based automation and artificial intelligence (AI) can help simplify the process. AI can help increase the pace and scale at which financial services organizations can automate processes.

Forecasting, reconciliation, and back testing are key areas for applying AI. According to Ventana Research: “Continuous accounting is an approach to managing transactions recording and accounting that takes advantage of current ERP technology to streamline and restructure the accounting function; it can provide more real-time information and insight while simultaneously cutting administrative overhead.”

Next week, we’ll look at how best-in-class companies are enhancing cash and liquidity forecasting.

If you would like to discover more about cash positioning and other related topics, we invite you to download this eBook on preparing for instant payments and building true cash visibility.