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Key pain points for today’s liquidity management

More organizations need to roll out a cohesive and “unified” enterprise liquidity management strategy, according to a recent IDC survey (commissioned by Kyriba) of more than 800 corporate finance leaders and practitioners. The survey was conducted to explore the emerging importance treasurers and other finance leaders are assigning to liquidity management, both during times of crisis and to leverage opportunities for growth.

The findings of the survey strongly indicate an urgency for CFOs, treasurers and other financial leaders to design and deploy strategic initiatives to manage liquidity “holistically.” As per the study, here are the key pain points driving this increased urgency for liquidity management for treasurers and other financial leaders:

Ineffective communication of key treasury/financial metrics to key stakeholders

A major reason for this problem is the relative lack of real-time access to liquidity data. The survey shows that less than 30% of treasurers can leverage treasury insights in real time.

Managing points of revenue leakage, including fraud and payment optimization

The survey highlights that financial leaders are doubling their focus on areas of revenue leakage, including bank fees/changes and fraud management issues. The reduction of transaction costs and fees paid to third-party payment providers was among the top five priorities for treasurers seeking to improve their ability to move cash and liquidity.

Given that the average organization will experience 5–10 fraud incidents per year, the impact on liquidity and cash is immense. Also, only 42% of leaders characterize their ability to protect their cash/liquidity against fraud as very effective, making this a vital area for plugging revenue leakage.

Managing constant regulatory changes

The regulatory environment is in a constant state of flux for treasury operations, including open banking implementation compliance, LIBOR transition regulations, and VAT rate changes. The CFO must have the tools to cope with these regulatory shifts. The survey shows that increasing the budget for treasury technology and tools is a leading priority for CFOs over the next two to three years.

Real-time cash forecasting and liquidity visibility still an issue for corporates

Amid increasing economic uncertainty, cash and liquidity management remain top of mind for financial practitioners. The pressure to hold adequate cash to fund business operations is tremendous. As a result, organizations have found themselves needing to forecast their liquidity and cash flow more frequently (weekly or even daily), according to the IDC study. However, companies remain hobbled in their ability to understand the full landscape of liquidity across their businesses around the world.

As per the IDC survey, only one in eight organizations have real-time visibility into more than 90% of their company’s current cash positions. Less than 5% of companies can reliably forecast cash beyond three months, with most companies being able to only reliably forecast their company’s cash position out to four weeks. Worse, fewer than 20% of organizations can forecast their company’s liquidity beyond one month.

The survey revealed that only half (51%) of the businesses were able to build a consolidated view of their cash and liquidity within the same day of the request. In addition to being able to forecast and reforecast quickly and efficiently, financial leaders found that they desperately needed the ability to simulate future what-if scenarios and to create plans based on those what-if scenarios.

Organizations must have a “unified” approach to liquidity management

These visibility limitations are impacting treasurers’ and finance executives’ ability to make quick decisions around the movement of money, internal funding of projects, or mergers and acquisitions (M&A) activity. This is precisely why the IDC survey recommends that companies develop a “unified” liquidity management strategy, a companywide approach to liquidity management that incorporates feedback from all departments – top finance leaders and even the broader business managers.

According to IDC, the key characteristics of a cohesive and unified liquidity management process include centralization of liquidity data to streamline financial operations, access to deep analytics to better predict future liquidity, development of a partnering environment for all operational decision makers and stakeholders, seamless integration of data flows between internal and external data sources and applications, and need for real-time data to build accurate forecasts and market simulations to optimize decision making.

Need for a chief liquidity officer

IDC advocates for organizations to have a unified approach to all data, processes and human capital related to liquidity management.

The importance of liquidity has increased dramatically, and the need for an enterprise liquidity management approach has grown in importance as well. When taken together, the survey states the growing need for a dedicated chief liquidity officer that will act as a central point of authority and accountability to develop, manage and optimize a “holistic and unified” liquidity management strategy to ensure alignment with a company’s overall business objectives, particularly as those objectives evolve over time.

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