Cash Flow Management Best Practices

Many business owners and financial executives face the same monotonous but essential task every day: assessing and optimizing their organization’s cash position. From ensuring liquidity for operations to maximizing yields by taking advantage of interest-earning opportunities, getting cash management right is critical to a company's financial well-being.

Yet, the chore typically entails time-consuming, repetitive manual processes, explains Jessika Wood, SVP, Head of Commercial Payment Products at Fifth Third Bank. "Treasury practitioners often spend significant time every morning extracting information from multiple banking platforms, consolidating it, and handling cash positioning," she says. "Then they repeat that exercise at the end of the day to make sure the company is hitting its targets and that closing balances are appropriate. It takes away from time they could otherwise have devoted to strategic planning."

In fact, a survey of CFOs at 61 large firms revealed they had to spend too much time on basic finance functions rather than more important tasks like strategic planning, according to research firm Gartner.

Does this challenge sound familiar? Fortunately for CFOs and treasurers, there is now an easier way to handle liquidity management. A suite of solutions offered by Fifth Third’s new Liquidity Manager tool can help businesses automate data collection and consolidation, providing detailed visibility into a company’s cash positions.

"Financial managers will be able to view all of their accounts and balances at different banks from one platform," explains Wood. "What’s more, they can then act on that visibility and move money to where it suits them best for daily management."

Automating Cash Optimization

In addition to streamlining visibility into a business’s cash balances, cash management platforms like Liquidity Manager allow a company’s financial manager to set up automatic transfers that will meet its cash management goals. "You may want to maintain a certain amount in an account on a daily basis for your operating needs," says Wood. "You can set up rules that will deliver on that business need—automatically moving excess amounts to an interest-earning account or pulling funds in when the balance drops below a certain level."

For example, a business may need to maintain $100,000 in a low- or no-yield account for daily operations. The company’s treasurer can set up a rule within Liquidity Manager so that any funds in excess of that $100,000 will be automatically moved to a higher-interest-bearing account. Alternatively, a company that has a regularly scheduled financial obligation—payroll or a monthly vendor payment—can set up a rule that automatically transfers the necessary amount on the day it will be needed.

The application updates account information continually as balances change. A company’s CFO or treasury specialist can log into the portal at any time to view all of the company’s cash positions in one place and make any necessary adjustments.

Start-Up Simplicity

To implement Liquidity Manager, companies adopt the tool to input information for all of their banking relationships and connect those accounts with Fifth Third to import data. While the setup time varies depending on the number of institutions, the process is relatively straightforward.

"Implementation is a light lift—a lot like information reporting, which most businesses are very comfortable with," said Chelsey Coker, a former treasury practitioner who is now Senior Treasury Consultant at Fifth Third Bank. "In my former role, I would spend up to two hours every morning checking cash balances at multiple platforms and making transfers to optimize the company’s positions, then repeat that at the end of the day. So that initial setup time is well worth the efficiencies gained by eliminating the day-to-day manual processes."

A Focus on Forecasting

In addition to cash position visibility and optimization, Liquidity Manager also collects and analyzes cash flow patterns to identify trends and will soon be equipped to forecast a company’s future cash needs. Such an analysis might, for example, help companies foresee and plan for the need to ensure the availability of funds for occasional one-time transactions, such as mergers or acquisitions.

"Companies can use the tool to look at historic inflows and outflows from a predictive standpoint to plan for future needs," said Wood. "They can go into the tool, select a timeframe and it will look at past behavior to generate a forecast for that period." Companies that already use their own algorithms or formulas to generate forecasts will be able to incorporate insights from their practices into the Liquidity Manager forecasting feature for greater accuracy.

When implementing Liquidity Manager, companies also have the option of exporting data from the tool to generate a side-by-side comparison with their current forecast methodology. "We understand that to gain their trust we’ll need to demonstrate that our results are as accurate or more accurate than the predictions from an existing process they may have been using for some time," says Wood.

The Who and the How

Liquidity Manager’s comprehensive cash analysis capabilities were designed to be applicable to a wide range of companies. Its features are robust enough to address the needs of large corporations while also appropriate for meeting those of small and midsize businesses.

"The tool can benefit any company with multiple banking relationships and the need to understand its cash positions and adjust and forecast them on an ongoing basis," Wood said.

"Liquidity Manager would have changed my day-to-day life as a treasury specialist in a really monumental way," agrees Coker. "Having a bird’s-eye view of all of the cash we had in every location globally, real-time analytics of payments coming in and going out, and robust forecasting capabilities would have been a game changer."

Learn more about how Liquidity Manager can help your business.