Cash visibility
- Adam Edwards
- Nov 2, 2024
- 2 min read
Cash visibility in International Cash Management is critical because it provides a clear view of where a company’s cash is located, how much is available, and in which currencies and accounts it resides. This visibility is essential for managing liquidity, optimising cash allocation, and minimising currency risks, especially for multinational corporations that operate across various currencies, jurisdictions, and banking systems.
Importance of Cash Visibility
Optimised Liquidity Management: Knowing where cash is at all times enables treasury teams to ensure funds are available where and when they’re needed, reducing the need to borrow or transfer funds at additional cost.
Enhanced Risk Management: Accurate cash visibility helps manage currency and interest rate risks by highlighting exposures in different currencies and regions. This is vital for controlling foreign exchange risks and interest costs associated with multiple currencies.
Improved Cash Forecasting: Cash visibility supports reliable forecasting by providing real-time data on cash flows, enabling the treasury team to predict inflows and outflows more accurately. This supports better decision-making and aligns with strategic goals.
Efficient Use of Cash: Clear visibility can help prevent excess idle cash and reduce reliance on external financing, leading to savings on interest and other financial costs. Companies can also pool excess cash for investment opportunities or intercompany lending, enhancing returns.
Regulatory Compliance: Many regions have strict compliance requirements for reporting cash and liquidity levels. Cash visibility aids in meeting these regulations, providing necessary transparency and reducing compliance risk.
Achieving Cash Visibility
Centralised Treasury Systems: Implementing a centralised treasury management system (TMS) that consolidates data from all bank accounts worldwide can provide a single view of cash balances across locations. This also helps streamline reporting.
Bank Connectivity and Real-Time Reporting: Direct connectivity with banks through digital channels, such as SWIFT or API integrations, allows companies to pull real-time data on balances and transactions. Real-time data ensures treasury managers can monitor and adjust cash positions instantly.
Cash Pooling Structures: Techniques like cash concentration and notional pooling enable companies to centralise or aggregate cash, making it easier to monitor and utilise effectively while reducing the number of bank accounts that need to be tracked.
Automated Data Collection and Reporting: Automation in data collection from subsidiaries, combined with consolidated reporting, reduces manual errors and improves the timeliness and accuracy of cash data.
Regular Reconciliation and Analysis: Frequent reconciliation of bank balances with internal records ensures data accuracy and helps identify any discrepancies early. Analytical tools integrated into TMS can provide insights into trends and anomalies in cash flows.
By investing in technology, establishing clear communication channels, and structuring cash effectively, companies can gain greater cash visibility. This not only supports sound financial decision-making but also enhances overall efficiency and resilience in international cash management.