Europe’s economy is starting to recover from years of volatility, but it is hardly out of the woods. While inflation is high, economic growth is not, meanwhile good talent is hard to find. The recent Intrum Payment report showed that optimism is back among executives, with 61% seeing digital transformation as a key growth opportunity. Additionally, 72% of European businesses prioritise strengthening liquidity and cash flow in 2024.
Do you know how much cash your business has right now, and is there enough to cover all your financial obligations in the next day, week, month, and financial quarter? Effective management of suppliers and aligning Accounts Payable (AP) with payment terms can unlock working capital and yield-on-liquidity benefits. If your AP team isn’t managing their activity while monitoring liquidity, you may have a silo problem. Nearly half of executives (49%), for example, say they are keen to grow internationally but their back-office problems such as managing Payments and Cash Flow are holding them back. This is where Embedded Finance plays a role, specifically allowing companies to optimise Accounts Payable processing to improve working capital, unlocking and enabling collaboration (between AP and Treasury) and growth.
Cash managers and treasurers usually start by examining bank accounts and assets. However, using disjointed systems or manual processes soon leads to errors, or at least, inefficient management of cash. In fact, three out of every four companies in Coupa’s IPO readiness survey revealed that they need to log into multiple systems to identify cash on hand across the entire organisation, with nearly a third admitting they need to log into more than four different systems. This complexity arises from minimal collaboration among Treasury, Accounts Payable, and Procurement, leading to siloed operations and inefficiencies.
Such decentralisation across divisions creates myriad manual procedures and incompatibilities between different processes, systems, and formats – making cash management and liquidity planning a major challenge for treasurers and cash management teams.
Imagine this:
Procurement works to negotiate payment terms with a primary Supplier, including establishing early pay discount terms instead of the negotiated 45-day payment term
Accounts Payable receives the invoice, and although they have a 10-day period to receive the payment discount, they end up making payment on day #20 after receiving the invoice, after the early pay term expires, but 25 days before the invoice is due to be paid.
Treasury is flush with cash and is earning an annual yield of 4.5% on the cash sitting in their bank.
In the above scenario, Procurement works to set up a structure with a large supplier to avail early pay discounts and generous payment terms. Meanwhile, Treasury is long cash and earning a low yield compared to the early pay discount which is >30% when annualised. Operational silos, caused by blind spots, lack of visibility, and poor communication, lead to inaccurate cash forecasts, suboptimal working capital, missed credit card program benefits, early payments, and late fees. Finance leaders face pressure to do more with less, including unlocking trapped capital and controlling costs. How can these silos be broken?
The key step to achieving this reality is to unify Treasury, AP and Procurement on the same platform, allowing for better communication and data information sharing. This will allow AP and Treasury teams to rely less on having to juggle across multiple systems to do their jobs.
Here’s a secret: a Business Spend Management (BSM) Platform provides organisations with a single source of truth into its current financial situation by tracking all supplier payment terms, invoices pending approval, invoice payment methods available per supplier, approved invoices, in-flight payments, and current cash positions. For instance, by combining Treasury data with approved PO and invoice data, treasurers and cash managers can obtain greater visibility into their company’s spend, which is fundamental to improving how they manage liquidity. In real-time, treasurers can see which payments are approaching and which have already been committed. AP teams can make appropriate payment decisions based on the company’s liquidity position, instead of Treasury having to respond to large payments without forward advice.
Armed with these insights, and working in conjunction with procurement and AP, corporate treasurers and cash managers can forecast their cash position more accurately and keep their cost of capital down.
By using a BSM platform to provide a single, digitised source of financial truth, companies can create forecasts and liquidity plans faster and more accurately. Plus, by breaking down silos and sharing data, finance teams can become better business partners, providing other departments with vital data that helps everyone solve tomorrow’s challenges together, today.
This editorial piece was first published in The Paypers' Embedded Finance and Banking-as-a-Service Report 2024, which is the latest comprehensive market overview and analysis focusing on the key players and products within the Embedded Finance and BaaS ecosystem.
Every day we send out a free e-mail with the most important headlines of the last 24 hours.
Subscribe now