Cash Flow Management with Business Intelligence
Cash flow management i.e.: cash inflows and outflows over a period of time so that corporate do not face liquidity crunches is a challenge with which financial professionals have struggled for decades. Simply stated, a Cash Flow reports needs to provide a reasonably accurate snapshot of the company’s cash position at a given time in a given currency. This is a function of the cash on hand; intercompany and third party collections; intercompany and third party payments; and finally of treasury settlements, all adjusted for banking and payment systems. But in today’s uncertain business climate, your success depends on more than the ability to understand the past. From regularly scheduled strategic planning to events such as mergers and acquisitions, divestitures, expansions, corporate re-structuring and product launches—the list of situations in which organizations seek a window into the future to reduce risk and uncertainty is endless. Globalization and competitive pressure and “overhead creep” are often cited as causes of cash flow issues. Gone are the days when all client and all products or services rendered automatically turned a profit. Determining who is a cash positive customer is key. We need to know clients business to us is cash positive by how much and which products are contributing to this success and for what reasons. This has to become the focus of many corporate finance organizations.While most companies have attempted some ad hoc approach to resolving the cash flow reporting and analysis challenge (usually founded in endless disconnected spreadsheets and cost reports) some businesses have taken a comprehensive approach to analyzing and managing cash flows using business intelligence. With BI implemented companies get powerful allocation rules that are easily set up – helpful in cost accounting activities. It helps with robust data integration with legacy applications and transactional systems. Graphical drag-and-drop administration of the chart of accounts and dimensional hierarchies. Preventive financial control mechanisms and sophisticated process management with automatic e-mail alerts. Nested dimension forms with drill and pivot features for ease of navigation is key with BI reporting. Using BI helps developing best practices to give them the insights they need to improve performance and obtain real results to manage cash flows. The business intelligence infrastructure helps to capture history, providing more data points for the cash flow reports. Because the solution is also data driven, it easily adapts to significant events that affect the markets, rates, customer, or vendor behavior in terms of invoicing or payment. Business intelligence represents the logical solution to developing an real time cash flow report as it uses the inputs of the working capital, or function based approach and the treasury, or static factor approach to create a dynamic and automated cash flow report with right item line KPI in dashboard visualization.
Posted on June 21st, 2010 by Sanjay Mehta
Filed under: Business Intelligence, Emerging Trends
Sanjay,
Although I agree with the general idea behind the article I must say that just analyzing the cashflow of a company is not effective enough. You must be able to directly go to source of your cashflow problems and act on it. Business Intelligence has been great at reporting about problems concerning cash flow management, but has yet to be able to act on what it finds in the data. Some solutions makes it possible to see what is going on in a dashboard and drill through to the source and directly act on what causes the issue, by for example directly let you contact the customer which invoice should have been paid 2 weeks ago.
I still think BI should be the first step towards a better cash-flow management, but it currently still lacks the maturity to take the last one.
Kind regards,
Tim de Lange
Great post Sanjay. However, I agree with Tim that business intelligence shall be the first step towards effective cash flow management. For all business operations and transactions, my organization recently opted for Concur Breeze- this helps in tracking every business expense that is placed on our corporate credit cards. Its been a fruitful experience for my company until now. Just thought of sharing..
Every business requires cash to operate, including home-based endeavors. The goal is to have more cash flowing into the business. A very nice article on Cash Flow Management with BI (Business Intelligence).