It’s time to look at cash management trends that will be dominating in 2023. After looking at the treasury management trends that will be on the agenda of treasury and finance teams in the coming year, it’s safe to say there are many similarities.
It’s intriguing to see that the impacts of the global economy have such a high impact on cash and treasury management trends. During the last three years, we have experienced plenty: a global pandemic that reshaped the way we work, a war that has impacted the global economy and supply chain far more than we could have imagined, and interest rates and inflation have been impacting both businesses and consumers.
All these changes and events keep finance professionals on their toes, providing both challenges and opportunities. Companies that can rise to the challenge and keep innovating their processes and the ways they work might end up as the winners of these unprecedented times. Today is an opportunity to build a better tomorrow and consider how to bring the trends below to your company to use them to the best of your abilities may just put you ahead.
Centralization of cash management
Centralization of cash management means that the group makes all decisions related to cash management from a single location so that local entities or subsidiaries have little to no autonomy in how the cash is managed.
Businesses have constant pressure to grow businesses and improve profitability. To be able to do that, it's crucial to be able to react to economic conditions by re-organizing or restructuring. Centralization of cash management is part of this. It can provide strategic benefits such as getting visibility into all the cash positions of subsidies and entities and actively managing and controlling cash (e.g., utilizing target balancing). Centralization also always aims at minimizing idle cash balances so that cash can be allocated better and transferred between entities to reduce the need for external funding.
Centralization also provides benefits such as economies of scale as the group can get better, for example, more favorable rates on loans and thus reduce costs.
Besides these core benefits, the group can also realize operational efficiencies such as tax implications, legal implications, accounting implications, improved group-level reporting, better collaboration with the IT team and other stakeholders, better collaboration with service providers and banks, and compliance implications, such as enhanced security.
More control over payments
Having centralized cash management operations goes beyond having a cash management policy and more control over account balances. A core element of centralized cash management is to create a unified way of executing payments.
For that, there are usually two alternatives:
- Implement a payment hub
- Implement an in-house bank
Both can be viable options, but choosing the right alternative vastly depends on the company’s cash management priorities and strategies and the company’s structure.
A payment hub is a platform to execute payments while improving control and visibility over outgoing payments. Whether the company operates globally or locally, a payment hub can be a good option for automating payments but also executing manual payments. It’s also preferred by CIOs as a payment hub and is excellent for compliance reasons as it comes with the necessary security measures and audit trails.
A payment platform typically sits between the company’s ERP system and banks (suitable for one or multi-bank), and it automates the payment workflows between all systems and banks.
In-house bank, POBO & COBO
A payment hub is an efficient and safe tool for executing payments, so how do you know whether you need an in-house bank?
The in-house bank comes with a payment hub, but it can do so much more for the group treasury – it is also an excellent replacement for cash pooling.
One of the main reasons and strategic benefits of an in-house bank is to carry out payments and collections on behalf of the subsidiaries (POBO & COBO), thus centralizing payment processes and increasing operational efficiency. In addition, it will reduce the number of bank accounts needed and the dependency on banks.
If your finance department is still doing reconciliation and matching manually, 2023 is the year for change. Instead of the manual work, it’s time to focus on automating the reconciliation process and constantly improving it. With reconciliation solutions, it’s possible to automatically import all open items from multiple sources and set up rule-based matching processes for AR & AP matching, balance matching, and more. The solutions also establish connections with banks to fetch bank statements and automatically identify and categorize bank transactions.
In addition, automated general ledger postings are a popular functionality that can post transactions to the general ledger systems based on pre-defined posting rules.
Improving bank relationships
When we talk about cash management, we cannot forget how important it is to maintain excellent relationships with banks. As opening, registering, changing, or canceling bank accounts are time-consuming tasks, the rest should be as simple as possible.
In this case, too, there are multiple ways to improve bank relationships and your everyday work. Nevertheless, tracking cash balances across different bank accounts from different countries, intercompany accounts, currencies, entities, and more is a priority.
You can either work with the bank's platforms or utilize banking APIs. Especially with so many banks developing new API solutions you may find it beneficial. We have listed some of the most innovative banks and their API offerings in this article – you might find it helpful.
When working with cash management solution providers, most vendors offer bank account management solutions, some even electronic bank account management with certain partner banks (e.g., Deutsche Bank), to ensure the group treasury has the necessary visibility into bank accounts and bank account balances. In addition, bank fee management is a solution many providers offer so that the group treasury can better control fees across banks and bank accounts.
As discussed above, many CIOs and CISOs are advising their cash management teams to invest in a payment hub solution not to gain more control over their payment processes but to improve security.
Naturally, one concern of the IT and security department is compliance. A payment hub comes with the necessary security features and audit trails that make sure that the security team has one less thing to worry about during the yearly audit.
The other concern is that fraud is rising – many may call it the modern bank robbery. Criminals have come up with creative fraud attempts to cheat out money from unfortunate victims.
So how can you detect fraud? There are two ways, and you should invest in both:
1. Train your employees
You must be providing your employees with security awareness training. You should go beyond classroom sessions and invest in practical training, such as phishing simulations, so your employees can improve their skills and always keep them on their toes. People working in cash management, finance, and treasury are more likely to be targets of the attacks. For example, CEO impersonation attacks are typical: the criminals impersonate the CEO and ask someone from the finance team to make a payment. The messages may look extremely real and can be challenging to spot. Basic training won’t prepare employees for sophisticated attacks, and they may execute a million euros payment that lands in the criminal group's bank account.
2. Invest in sophisticated fraud detection technologies
Payment process controls are a must in 2023! Think of them as an insurance policy – there may not be a fraud attempt in your company next year, but when it hits you (and it eventually will), you will be happy you made the investment.
Payment process controls often utilize artificial intelligence (AI) or a rule-based setup. Based on the rules, they can catch anomalies and escalate the payments for further review. Once under review, employees can investigate whether the payment is legit and should be sent to the bank or if it needs further inspection.
Emerging technologies: AI, RPA, & APIs
Emerging technologies are going to dominate cash management as well, just like these technologies have been disrupting other industries for years.
AI in cash management
AI has been a hot topic in cash management for some time already and some experimental teams may have already adopted solutions that have AI or machine learning built in.
So which areas of cash management could AI have changed the most? We expect that fraud detection will become easier with machine learning and deep learning. Also, cash flow forecasting can benefit from AI technologies, such as using advanced statistical modeling combined with machine learning and data mining for predictive analytics.
RPA in cash management
Robotic process automation (RPA) is a technology for automating operations, identifying and extracting data, and improving data quality by mimicking how humans interact with applications. Robotic process automation can significantly reduce operations costs by streamlining workflows and providing more flexibility to operations.
How does RPA work in cash management?
Perhaps the most significant benefit is improving how data is handled as it often needs to be shared across systems. Using RPA, it’s possible to automate the process of getting the data without sending spreadsheets back and forth. The opportunities are endless, so to start with RPA, it’s good to research the different use cases.
APIs in cash management
APIs have been all the talk in many industries for the last few years. It’s no different in cash management. APIs could improve the interconnectivity between systems and speed up data sharing.
Since open banking has been on the rise, banks have also developed APIs for different purposes to provide seamless access to data, like retrieving account statements or getting payment statuses.
The accelerated pace of M&A activity
M&A activity remained robust in many geographic areas during 2022 despite economic challenges. Experts are expecting that M&A activity will continue to accelerate during 2023. From a cash management point of view, it means several things:
Liquidity management is key
Among other factors, having accurate visibility into the company’s cash positions and how different circumstances such as rising interest rates affect it, will have an impact on the M&A activity of enterprises.
Integrating new companies
During mergers and acquisitions, cash management also plays other roles than just purely from a liquidity planning aspect. As a result of mergers and acquisitions, it’s essential to make sure that the integration focuses on how cash management is handled currently in the new companies. Questions like how their payments are handled may arise. At the same time, you may need to plan ERP integrations and add bank connections to your existing solutions to integrate the newcomers into your processes.
One thing won’t change during 2023: Cash remains king
There’s this old saying in cash and treasury management: cash is king! For sure, this is not going to change in the new year and cash remains royalty in the future, too. As the world is changing rapidly and new challenges may come our way in 2023, knowing your cash positions will be more important than ever. For more accurate forecasting, centralization of cash management should be a focus next year and in the years to come.