If the past few years have taught us anything, it’s that financial forecasting is tough — and for treasurers especially, it’s a blend of art and science. Cash flow remains the cornerstone of a company’s health, but with pandemic impacts, changing consumer behaviors and supply chain disruptions, it has become harder to forecast it.
Greg Kerwick, head of client solutioning for JPMorgan Chase’s Commercial Banking business, told PYMNTS’ Karen Webster that executives — within treasury, yes, but also across the C-suite — have become more keenly aware of how money is flowing into and out of their enterprises.
“Everybody’s receipts and revenues changed dramatically, depending on the industry in which you’ve operated,” he said of the pressures wrought by the pandemic over the past two years.
Macro Headwinds Demand Innovation
The urgency to have better visibility into cash positions is mounting, especially in the current macro environment, where interest rates are soaring.
Put simply: Cash is king. It becomes nearly impossible to manage a business if the chief financial officer (CFO) and the treasury operations do not know how much cash is on hand or will be on hand in the future.
When liquidity is constrained, companies don’t have room to maneuver, act or react strategically to opportunities or challenges.
Back-office inefficiencies compound the lack of visibility. Many larger firms are still using Excel spreadsheets to navigate back-end operations, including tracking cash flow.
But the complexity of payments and the sheer range of payment types make such manual record-keeping unwieldy at best and error-prone at worst. If a company relies on batch, email or spreadsheets to inform its cash flow forecasts, it relies on fragmented processes to think about strategy and the future.
Strategic Partners
Treasury operations need to be connected to the rest of the business because payments are now a strategic differentiator for so many companies.
Payments, said Kerwick, are now tied to product development and marketing and can be leveraged as a revenue generator. Consumers and enterprise clients may be willing to pay for the convenience of real-time settlement and earned wage access, to name but two features.
Real-time payments can also improve commercial transactions across a strained supply chain, as companies that pay suppliers faster and with better surety of settlement are more likely to receive their goods more quickly.
Data and the Role of the Banks
Many firms have not fully earmarked the funds needed to improve treasury operations and link treasury to other departments as management’s focus might be trained on revenue-generating activities.
However, the investment focus is changing, and the more interrelated treasury is with other operations, the more likely it becomes that the investments needed to modernize will come.
Fortunately, innovation is at the treasurer’s doorstep, on offer from traditional banking partners. At a high level, technological innovation transforms the business and financial landscape, chiefly by improving cash flow visibility.
Banks, said Kerwick, recognize the need for their enterprise clients to modernize and streamline their cash management practices — and the financial institutions (FIs) have the technologies, tools and data that bring cash flow forecasting fully into the digital age.
With artificial intelligence (AI), machine learning and a wealth of data that can be shared between FIs, it’s possible to help enterprises create holistic cash flow models and factor in scenarios such as mergers and acquisitions (M&A) and unanticipated expenditures.
FIs themselves have considerable stores of information to harness, Kerwick told Webster.
“You can look back on the secure data that banks have all around a client, and even if those balances sit somewhere ‘else,’ there is an opportunity to do multibank reporting where data can be imported from other banks,” he said.
There’s no shortage of information to be collected, analyzed and used to make better decisions. Application programming interfaces (APIs) can also help improve data flows between and within companies, improving intra-enterprise communications and insights.
And with that data, JPMorgan and other FIs offer their clients cash flow intelligence modeling, which looks at prior trends, forecasts new ones and drills down into outliers — all in a bid to get a sense of what will be needed in the days, weeks and months ahead, he said.
“Companies that abide by a principle of data-driven decision making need to have that data at their fingertips,” he added.
With that granularity of insight — and better knowledge of where cash is, where it’s headed and when it’s hitting various accounts — the actual culture inside an organization can be transformed.
The treasurer’s office can become a nexus of firm-wide intelligence. Financial teams operate more fully in lockstep with other departments to ensure that strategic goals (not just financial ones) are met in the short term and long term.
Having more connectivity to the other parts of the business and being able to help support those objectives gives treasurers a key seat at the table, he said.
“With the advent of AI and machine learning,” he told Webster, “there are new ways to automate and really add a lot of intelligence to the concept and execution of cash flow forecasting.”
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June 14, 2022 at 03:03PM
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JPMorgan Taps AI, Real-Time Data to Make Cash Flow Transformation a Reality - PYMNTS.com
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