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A guest article by Dr. Nirmalarajah Asokan, Senior Content and Marketing Manager at Agicap
Eliminating liquidity bottlenecks before they even arise. What sounds like the holy grail of liquidity management is, thanks to digitalization, no longer just wishful thinking.
Digital tools can now evaluate a wealth of data in seconds, providing users with insights into their business that were unthinkable before the digital transformation. In this article, learn how digitizing cash flow management can help your company—and not just when you are already in the red.
Why use digital tools at all?
The vast majority of corporate insolvencies are due to poor cash flow management. In hindsight, it is often discovered that many liquidity bottlenecks were self-inflicted and could have been avoided with better planning.
For this reason alone, it is advisable for executives and finance managers to take cash flow management seriously and monitor cash flows regularly.
Ideally, you should start while your company is still in a financially sound position. This saves you from having to act in a rush when a bottleneck is already looming and gives you and your employees enough time to get familiar with the tools. If a crisis does threaten, you will keep a cool head, which is absolutely essential for making the right strategic decisions for your company.
Digital cash flow analysis and planning: A dream team
Effective cash flow management includes both the analysis and the planning or forecasting of future cash flow. A detailed and close-knit analysis offers you the following advantages:
- Identify high cost items and potential savings by putting your outgoing payments to the test
- See in black and white exactly how high your cash flow deficit or surplus is every month (every week, or even every day)
- Compare actual values with the target values from your liquidity plan and see how well you are on track to achieve your company goals
- Based on the analysis, you can create your cash flow plan or forecast for the coming months (weeks/days). This provides you with the following advantages:
- View your expected incoming and outgoing payments for the near future, taking into account the current market situation and customer demand
- The forecast shows you whether you should expect a deficit or a surplus, allowing you to better prepare for the respective situation
- Forecasts often make looming liquidity bottlenecks visible several weeks or even months in advance
- Make the right decisions for your company more easily based on a comprehensive data foundation
Not all digital tools are optimally suited for cash flow management
Even very small companies now have not just one business account, but several. Monitoring the incoming and outgoing payments on each of these accounts is therefore a challenge in itself. Many companies use Excel for cash flow management to somehow get a handle on the numbers.
Employees are often busy for hours transferring account transactions into a dedicated liquidity spreadsheet in Excel. The disadvantage of this method is not only that it is very time-consuming, but that typos and transposed digits can easily creep in, which later present a false picture of the company's cash flow.
This high time expenditure makes it impossible to monitor cash flow closely (e.g., on a weekly or daily basis). Most companies create a liquidity analysis and plan on a monthly basis, which usually means those responsible can only react rather than act proactively and with foresight. This "flying blind" makes decision-making even more difficult during turbulent business phases.
Dynamic tools are better suited for cash flow management
Digitalization has brought forth many smart ideas, including in cash flow management. Agicap's software, for example, was developed specifically for cash flow management and aims to make it as comfortable, fast, and efficient as possible, leaving more time for the truly important aspects of business management.
- Unlike static tools like Excel, dynamic liquidity management software such as Agicap's offers you many advantages:
- The tool connects automatically to bank servers and retrieves transactions from every account daily, ensuring the data is always up to date
- Manual entry of account balances is completely eliminated, as the tool automatically transfers all incoming and outgoing payments to the dashboard, from where the figures can be further processed
- An intelligent algorithm ensures that transactions are always sorted into the categories defined by the users, which creates more clarity and allows for in-depth cost analysis, for example
- Using parameters, users can set up various liquidity scenarios and view cash flow forecasts under different aspects, which helps to identify bottlenecks and redirect money to the right places if necessary
Conclusion: Investing in digitalization is a preventive measure
Investing in digital tools may seem to some like an additional cost without much added value, but once the company starts running in the red, modernization measures become necessary to avert insolvency—and often it is already too late by then.
The smart move is to invest in digitalization early and start using digital tools while business is still booming. This ensures your team is already familiar with the software and fully equipped to keep the company on a solid financial footing, thanks to all the benefits outlined in this article.
In economically challenging or turbulent times, digital cash flow tools help you keep a close eye on liquidity, allowing for precise control of your cash flow. Furthermore, a detailed forecast shows if or when a liquidity crunch might occur. This gives decision-makers time to take action to eliminate the bottleneck or at least mitigate its impact.
Digital tools can therefore make the difference between a successful company and one that fails. It is up to everyone to decide whether this investment is worth it to them.
About Dr. Nirmalarajah Asokan:
Dr. Nirmalarajah Asokan is a Senior Content Marketing Manager at Agicap in Berlin. He specializes in liquidity management, cash flow, and financial planning. He is currently responsible for the conception, optimization, and implementation of content marketing for the Agicap liquidity management tool.
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