Corporations Increase Focus on Cash and Liquidity Management, Finds Study

A recent survey, conducted by the Aberdeen Group in collaboration with SunGard, US Bank Corporate Payment Systems and Basware, reveals that corporations are placing increased importance on gaining control and visibility over cash and liquidity management. The report entitled ‘The 3-Part Balancing Act of Cash Management: Optimising the Financial Value Chain’, discusses the steps that best-in-class companies are taking to optimise their business processes with the goals of reducing risk, decreasing costs, promoting efficiencies and laying a strong groundwork for generating profits.

The study surveyed 130 companies worldwide, and results indicate that 82% of these companies have increased their focus on cash management in 2009. Fifty-three per cent of the ‘best–in-class’ companies polled answered that they were less likely to rely on spreadsheets and manual processes for managing cash. Furthermore, about a third of respondents indicated a need to improve liquidity. Aberdeen Group attributes this statistic to the fact that many companies rely on fragmented processes and systems across treasury, payments and receivables, giving them only a partial view of cash and making predicting cash requirements difficult.

The report recommends that corporations looking to ease the effects of challenging market conditions and achieve improved performance should consider the following:

  • Enterprise-level visibility into cash and the financial supply chain, including customers and suppliers.
  • Effective cash management strategies that are not restricted to operational cash, but encompass treasury, accounts payable (A/P) and accounts receivable (A/R).
  • Straight-through processing (STP): to facilitate better communication across internal systems and with trading partners.

Cindy Jutras, vice president of research development and research fellow at Aberdeen Group, said: “Interestingly, contrary to the classic approach to cash management that companies collect early, pay late, and invest the residual for the greatest return with a manageable risk, our research indicates that top performing companies are not delaying payment as long as possible. Instead, those with low days sales outstanding [DSO] also paid invoices more promptly, minimising late payment fees and lost discounts.”

One company working to reduce DSO and improve cash flow by leveraging receivables management technology is Dresser. “After we implemented AvantGard, we lowered our DSO, decreased past due A/R, and reduced our bad debt reserve by 20%. With the increase in cash flow, Dresser was also able to decrease working capital requirements, which helped the company as it navigated through the economic downturn,” said Bill Uhrich, director of corporate credit at Dresser.


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