Technology, the best way to unlock trapped liquidity ?

July 20, 2021

Treasurers and CFO must take the lead in finding internal sources of funding. As companies face an ever-shifting regulatory landscape and growing geopolitical uncertainty, they are more likely to look inward for funding than in previous years. However, CFOs and treasurers of global companies often run into the problem of trapped liquidity—when money is tied up in one place and cannot be moved elsewhere—which can limit their ability to use that cash for other purposes. According to PwC’s Annual Global Working Capital Study, more than €1.3 trillion in liquidity is trapped, due to non-efficient ways of capital management.

2022, a year of uncertainty for multinational companies 

For treasurers, trapped liquidity occurs when cash is restricted from being mobilized quickly to support organizational needs, this is due to both legal/regulatory restrictions and a lack of visibility. Cash visibility is one point that can be addressed quickly with the right tools...

Nowadays, many people work in data silos, which makes data analysis and visualization quite difficult. What you require is basically real-time information and tracking. The old-fashioned way of managing CAPEX is thus quite inefficient in our world, especially when it comes to maximizing your cash allocation efficiency. The most common reason for the poor cash forecast availability is the lack of adoption in technologies used by financial and the disconnect between operational activities and their financial translation. Concretely, treasures often experience difficulties to gather the right and complete information and to present it in an intelligible way to decision makers on the company’s sources of funding.

Today, finance practitioners tackle a few issues that must be addressed when talking about cash visibility and CAPEX management:

  • Real-time data: today, especially in our complicated socio-economical context, financials need to move 
  • Visibility and forecast accuracy: in our world, only a few know exactly where a company stands and is heading in terms of engagements and payments at a weekly or monthly. It’s a key point for financials to have access to real time data about cash and CAPEX management data, to take the right decisions and meet the global objectives of the company.
  • Security: a lot of financials use a very old-school way to communicate with stakeholders – e-mails, excels, shared files, which is definitely not a good practice in terms of safety. Data protection is a key issue for the finance world, due to the lack of accurate software tools.

So, how can you tackle this issue of cash visibility and forecast accuracy? 

The right technology to unlock trapped liquidity

Having real-time cash visibility is crucial for companies, to act fast in our fast-paced economy, thus making the decision-making process more efficient and precise. This is key for a company to increase efficiency and generate growth focusing on the right opportunities, having an eye on:

  • The most efficient projects (versus the inefficient and cash consuming ones)
  • The payments due dates and project delays  
  • The cash generated by projects and their timeliness

Technology, if used correctly, is a good answer to the cash visibility issue, the most popular tools used by advanced treasures being : 

  • APIs, managing information flows between stakeholders and partners
  • Foreign exchange tools to make the most out of currency markets 
  • Various automations on cash managements 
  • Tools connecting operations and finance organizations to increase forecast accuracy

A good tool to achieve real time data

Managing Capex investment efficiently can contribute to increase the companies’ liquidity. Indeed, adopting the right software increases the transparency on the company’s engagements status. It also helps, forecasting the implications of those engagements (i.e., payments timing and amounts) making it easier for the whole financial organization to avoid loosing value from to inflation while lowering opportunity costs. Furthermore, in a fast-paced environment, having real-time visibility on the engagements, increases the company’s agility and ability to reallocate funds to alternative strategic initiatives. A good tool, is therefore one that breaks the silos between the financial and the operational organization to re-create the link between operational activities and their financial translation.

When we created Vertical, our focus has always been to reconcile the finance and the operation world. This allows our clients to maximize their investments by accessing real-time and accurate cash flows forecasts, as well as a real-time view of their financials’ engagement status.

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