Many businesses manage their cash flow and payments using spreadsheets and basic accounting software. But as they scale, that type of cash management is no longer viable. An investment in systems that can help visualize how much cash a business has—and how much it will have in the future—is necessary, particularly when it comes to handling accounts payable (AP) and accounts receivable (AR) information.
In a recent PaymentsJournal webinar, B.C. Krishna, Founder and CEO of Centime, and Brian Riley, Co-Head of Payments at Javelin Strategy & Research, discussed how small and medium-sized enterprises can better manage their cash flow by integrating accounts payable automation, accounts receivable automation, cash reporting, cash forecasting, and lines of credit.
Cash Is King but Difficult to Manage
Managing cash is crucial to the success of any business. “Businesses that do well by managing their cash, generally speaking, are highly valued and grow as well,” Krishna said. “Larger enterprises have the maturity, people, technology, and treasury management solutions to be able to gain insights into how their cash functions.”
But for smaller companies that are less mature, knowing how much cash is liquid at any point can be surprisingly difficult.
“As you move down market into the small and midsize businesses, the discipline and the rigor associated with cash management is sorely lacking,” Krishna said.
Most companies have a 13-week cash forecast, which represents one business quarter—and this forecast is crucial for planning. But in many small and midsized businesses, putting together a cash forecast is at best a manual, ad-hoc, error-prone process, Krishna noted. “And the logic of what happens is buried inside some Excel spreadsheet that only one person properly understands,” he said.
Having a visual representation, one that accounts for the timing of the inflows and outflows, allows a company to manage cash more easily day to day. Such a system also makes it crystal clear to everyone how it gives them the ability to manage their cash on an ongoing basis.
Partnering with Banks for Solutions
Centime’s goal is to integrate accounting practices that have traditionally been managed separately, corralling them to perform holistic cash management. “If you look in the industry today, you have AP products, AR products, cash-forecasting products, but nobody has really brought them together under the rubric of better managing cash and cash flow,” Krishna said.
For example, most AP solutions on the market target accounts payable specifically, without integrating that with a broader cash management perspective. The ability to manage cash outflows is good, but even better is being able to see, in graphic form, how those outflows will affect cash flow over the next quarter. That is the integration Centime provides. If a business can stretch days payable outstanding, it can increase working capital.
As a business owner tweaks the way accounting and payments are done, Centime’s software automatically updates the cache for forecasts based on those changes. “That provides a more current view into your forecast rather than waiting for the end of the week and having that person with a spreadsheet update it, and hope they didn’t make an error,” Krishna said. “It’s a real-time forecast.”
Managing Cash Well Leads to Savings
The cash flow gains of focusing on these accounting statistics can be significant.
“According to one study I read recently, something like 53% or 54% of invoices in the U.S. B2B marketplace are paid late,” Krishna said. “Another study showed that the typical midmarket company has something like $300,000 in late open receivables. These are not small numbers.”
With Centime’s software, the effects of such changes immediately appear in the diagrams showing cash flow, so it is easy to see the impact of various modifications.
Sometimes, businesses face a cash flow gap even with robust cash management. In such a scenario, simple access to credit is needed. Riley said the integration of banking products into a software package that puts cash management and forecasting front and center represents a renewed focus on small to medium-sized businesses.
“Banks are used to offering products that center around what they do,” he said. “What I see is the shift here is moving away from a bank-centric model and focusing more on the business owners themselves as it integrates with financial services.”
This reorientation is a new development driven by the fintech industry, and by Centime in particular. Centime integrates accounting automation and credit options offered by banks into one cohesive experience, which makes it easy to visualize how various choices can influence cash flow.