In previous blogs, I’ve addressed several key topics that are critical for the office of the CFO, including working capital management, a global approach to cash, and leveraging in-house cash management.
This blog post covers a closely related topic: the importance of banking connectivity as a tool for streamlining and improving visibility to cash flows while also enhancing companies’ ability to maximize their return on cash assets.
In today’s increasingly complex global environments, companies must balance multiple factors, including diverse global operations, changing compliance requirements, regional and local regulatory mandates, escalating financial risks, international trade and foreign currency issues, and geographically diverse banking relationships.
Unifying and optimizing your banking connectivity is a core requirement to more effectively address all these interrelated issues. Optimizing connectivity between your financial system and your banking institutions is essential for real-time daily cash management and the ability to maximize return on all your cash assets.
Banking connectivity provides an enterprise-wide foundation for security, completeness, accuracy, and timeliness of your data, along with delivering the insights and visibility to optimize daily cash positions.
A fully integrated banking connectivity solution can provide:
- Insights into where your cash is and with whom
- Visibility to drive real-time cash positions
- Integration with AR/AP to optimize cash posting and return on cash flows
- Enhanced security encompassing all cash repositories
- Meshing cash with workflows to integrate compliance (SOX, ICFR, etc.)
- Improving cost controls regarding banking fees, compensating balance requirements, etc.
Let’s look at a couple of examples of how improving your banking connectivity can deliver tangible and measurable real-world benefits:
Example 1: Cash position improvement
A high-tech company in Texas was unable to resolve its daily cash position until mid- to late afternoon due to multiple bank statements and lack of integration with AR/AP systems. These delays were costing the company 10 to 20 basis points for borrowing and investing returns on their cash. By implementing software supporting bank communications management and electronic bank statements, with integration to cash management and finance systems, the company was able to get a picture of its net cash position before noon, along with frequent updates throughout the day.
Benefits: The company’s treasury staff gained a much better understanding of their borrowing and investing positions, which enabled them to make market-based decisions sooner. This enhanced visibility allowed them to save 10 to 20 basis points on borrowing and 10 or more basis points on investments. The bottom-line benefit was an improvement of over US$1 million in savings on borrowing interest and increased earnings on investments.
Example 2: Vendor payment automation
A Fortune 500 design-tools and platform-services company needed to improve vendor payment management for hundreds of accounts spread across 35 entities that encompassed multiple jurisdictions and currencies. As a result of growth through acquisitions, the company also needed to rationalize diverse accounts, finance processes, and bank relationships.
By leveraging software for bank communications management, multi-bank connectivity, and cash management, the company was able to optimize and consolidate its bank relationships and gain visibility into global cash needs. The company also succeeded in leveraging bank relationships to control fees and minimize requirements for compensating balances.
Benefits: The company is now able to better control fees to save hundreds of thousands of dollars annually from lower ACH, wire transfer, and other bank charges. In addition, by freeing up cash from reduced compensating balances, the company has significantly lowered overall borrowing costs.
Another major benefit for companies is the seamless compatibility of currently available banking, cash management, and finance applications with the next-generation system architecture. These mean that the implementation of enhanced bank connectivity not only delivers immediate ROI; it also lays out a smooth forward-migration pathway for migration to and integration with other new capabilities.
In essence, by focusing on banking connectivity, companies can get valuable short-term payoffs in the form of reduced banking costs, improved cash utilization, and higher productivity. At the same time, they are laying the foundation for finance transformation and the intelligent enterprise of the future.
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