AI and data help transform cash flow management

If the past few years have taught us anything, it’s that financial forecasting is difficult – and for treasurers in particular, it’s a mix of art and science. Cash flow remains the cornerstone of a company’s health, but with the impacts of the pandemic, changing consumer behaviors and supply chain disruptions, predicting it has become more difficult.

Greg Kerwick, head of client solutions for JPMorgan Chase’s commercial banking business, told PYMNTS’ Karen Webster that leaders — within treasury, yes, but also across the C-suite — have become more aware of how money flows in and out of their businesses.

“Everyone’s receipts and income have changed drastically, depending on the industry you operated in,” he said of the pressures brought on by the pandemic over the past two years.

Macro headwinds demand innovation

The urgency of having better visibility on cash positions is becoming more and more pressing, especially in the current macroeconomic environment, where interest rates are soaring.

Simply put: cash is king. It becomes nearly impossible to run a business if the Chief Financial Officer (CFO) and Treasury Operations do not know how much cash is available or will be available in the future.

When liquidity is constrained, companies have no room for maneuver, action or strategic reaction to opportunities or challenges.

Back-office inefficiencies compound the lack of visibility. Many large companies still use Excel spreadsheets to navigate back-end operations, including tracking cash flow.

But the complexity of payments and the wide range of payment types make this manual record keeping at best unwieldy and at worst error-prone. If a company relies on batches, emails, or spreadsheets to inform its cash forecast, it relies on fragmented processes to think about strategy and the future.

Strategic partners

Treasury operations need to be connected to the rest of the business, as payments are now a strategic differentiator for many companies.

Payments, Kerwick said, are now tied to product development and marketing and can be leveraged as a revenue generator. Consumers and business customers may be willing to pay for the convenience of real-time settlement and access to earned wages, to name just two features.

Real-time payments can also improve business transactions in a tight supply chain, as companies that pay their suppliers faster and with better payment certainty are more likely to receive their goods faster.

Data and the role of banks

Many companies have not fully allocated the necessary funds to improve treasury operations and link treasury to other departments because management could focus on revenue-generating activities.

However, the focus of investments changes, and the more interdependent cash is with other operations, the more likely it becomes that the investments needed for modernization will come.

Fortunately, innovation is at the treasurer’s doorstep, offered by traditional banking partners. At a high level, technological innovation is transforming the business and financial landscape, primarily by improving cash flow visibility.

Banks, Kerwick said, recognize the need for their corporate clients to modernize and streamline their cash management practices – and financial institutions (FIs) have the technologies, tools and data that bring cash flow forecasting fully into play. cash in the digital age.

Using artificial intelligence (AI), machine learning, and a wealth of data that can be shared between FIs, there is an opportunity to help companies create holistic cash flow models and take into account scenarios such as mergers and acquisitions (M&A) and unexpected expenses.

FIs themselves have huge stores of information to tap into, Kerwick told Webster.

“You can look back at the secure data banks have around a customer, and even if those balances are somewhere ‘elsewhere’, it’s possible to do multi-bank reporting where data can be imported from other banks “, did he declare.

There is no shortage of information to collect, analyze and use to make better decisions. Application programming interfaces (APIs) can also help improve data flows between and within companies, improving intra-company communications and information.

And with that data, JPMorgan and other financial institutions offer their clients cash flow intelligence modeling, which examines past trends, forecasts new ones, and explores outliers – all with the aim of get an idea of ​​what will be needed in the days, weeks. and months to come, he says.

“Companies that follow a principle of data-driven decision-making need to have that data at their fingertips,” he added.

With this granularity of information – and a better understanding of where the money is, where it is going, and when it reaches various accounts – the actual culture within an organization can be transformed.

The treasurer’s office can become a company-wide intelligence hub. Finance teams work more closely with other departments to ensure that strategic (not just financial) goals are achieved in the short and long term.

Having more connectivity with other parts of the business and being able to help support those goals gives treasurers a key seat at the table, he said.

“With the advent of AI and machine learning,” he told Webster, “there are new ways to automate and really add a lot of intelligence to the concept and the execution of cash flow forecasts”.