Top-line growth rates and earnings results grab headlines, but how an organization manages cash is a key indicator of its overall stability. Cash makes it possible for businesses to expand, hire employees, purchase equipment and launch new products.
On the other hand, poor cash flow is often the first sign of financial trouble. It can result in late payments, delayed purchases and increased debt. Companies struggling to maintain positive cash flow have less flexibility. They may be forced to reduce costs, turn down opportunities and give up equity to stay afloat.
Having an effective cash management strategy is critical for avoiding these problems.
Defining cash management
At a high level, cash management involves the collection of receivables, payment of liabilities and investment of liquid assets to ensure optimal utilization. But cash management isn’t just a set of financial processes; it also involves policies, priorities and decisions about how cash is used in the business.
Efficient cash management ensures there is enough cash available to cover day-to-day operating costs and minor expenses, plus a small cushion in case of emergency. Surplus cash can then be used to fund growth, generate income or pay down debt.
Manual processes lead to data inaccuracy
Effectively maintaining cash flow is a balancing act. It requires knowing the value of outstanding receivables and average days sales outstanding, the value of payables and payment terms, and how much cash is actually available at any given time—that last bit is truly the hard part.
For a company with a single bank account, checking the current balance can mean a simple login. For fast growing and larger organizations with multiple bank accounts and hundreds of daily transactions however, cash account balances change too often and are quickly out of synch with the general ledger (GL).
Every transaction posted to a company bank account must eventually make its way into the accounting system, and manually reconciling bank postings with the GL introduces latency.
Further, data inaccuracies, including fraud and user input mistakes, can also make it difficult to know how much cash is available. Even small errors add up, especially as transaction volume grows.
Although problems surface during the course of a routine bank reconciliation, many organizations only perform these monthly, partly because reconciliation is a largely manual process, and reviewing thousands of transactions from multiple bank accounts is extremely time consuming.
Intelligent Cash Management
Nevertheless, finance leaders must know how much cash the business needs, how much it has on hand and how much it’s owed. Achieving this requires an intelligent cash management solution that minimizes latency, reduces the risk of data entry errors, and streamlines bank reconciliation.
NetSuite 2020 Release 1 delivers on these requirements with new functionality that automatically gathers bank transaction data, provides real-time updates with the click of a mouse, and automates the reconciliation process.
- The new Bank Feeds SuiteApp connects with over 1,000 financial institutions across North America, automatically importing transaction details into NetSuite and giving companies access to their latest cash balances.
- Companies doing business outside of North America can take advantage of the new Financial Institution Connectivity API to build their own NetSuite plugin and automatically import bank data from financial institutions around the world.
- An intelligent rules engine powers automated bank reconciliation, resulting in improved transaction matching and eliminating manual processes.