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Optimizing Liquidity Management from the Top Down

By Kyriba

Timing is everything in cash forecasting and liquidity management. Delivering the forecast in a timely manner is critical; the faster it is produced, the faster the organization can act upon it. Furthermore, forecasts hinge on critical moments in a timeline; for example, collecting payments when expected allows for the forecast to be accurate.

With a liquidity planning module like the one Kyriba offers, cash and liquidity forecasting becomes timelier and more accurate all while breaking down silos that restrict information flow up and down between treasury and the CFO. Doing so prevents any surprises throughout the hierarchy of finance, optimizing each individual level of the organization from the CFO down to the analysts.

“Liquidity Planning provides value to everyone in the chain,” noted Thomas Gavaghan, vice president of global presales for Kyriba. “But everybody’s got a bit of a different challenge.”

Liquidity Management for the CFO

The CFO has the most pivotal role in the finance organization. The finance chief is responsible for overseeing the entire financial operation, hitting cash flow targets, optimizing EBITDA, and making shareholders and the CEO happy.

Fully 80% of CFOs need full visibility into cash and liquidity, according to a November 2022 survey by Bottomline Technologies. Furthermore, 80% also said they need better access to real-time payment data, analytics and insights, and 72% say they need a more integrated view of payables, receivables and treasury management.

The survey of over 200 CFOs noted that there is “almost universal agreement” among CFOs that SaaS and cloud-based technologies can strengthen overall cash visibility.

Liquidity Planning can be a critical tool for the CFO because it provides these views in a timely and convenient way. “CFOs are getting challenged to get to 20% revenue growth. Going from 25% to 40% EBITDA—that’s a challenge that a CFO is going to have. They’ve got to make the shareholders happy. Liquidity Planning gives their team the ability to help them,” Gavaghan said.

He added that the past three years have made it incredibly difficult to forecast and create accurate, reliable scenarios and sufficiently test them with confidence. But Liquidity Planning allows the entire finance team to answer questions and challenges that the CFO gives them, performing high-level analysis. The CFO can then take that input and provide a strategic plan to the CEO and shareholders.

The Treasurer’s Liquidity Responsibilities

Leading the treasury function are the treasurer and assistant treasurer. These individuals are responsible for meeting financial obligations, providing information to the CFO, and deciding on how to facilitate the overall plan with liquidity.
“They’re the ones that are going to look at the financial plan and objectives and figure out how to do it with the liquidity we have… whether it’s increasing positions being held in investments or tapping into credit. They have to help the CFO make those decisions,” Gavaghan said.

CFOs look to the treasurer and assistant treasurer to deliver information quickly and accurately. Additionally, the CFO will pressure them to reduce expenses or cut down on borrowing, which is happening frequently right now as interest rates increase.

Liquidity Planning helps treasurers and assistant treasurers by:

  • Analyzing consolidated plans across organizations: With Liquidity Planning, treasurers have all their plans in one place. This is especially helpful for large corporations; treasury doesn’t need to reach out to different subsidiaries and companies for their individual spreadsheets and then try to make sense of them all.
  • Quickly completing scenario analysis on the fly: If the CFO asks the treasurer for analyses on different potential scenarios, Liquidity Planning can model those scenarios much easier and more effectively than a spreadsheet can.
  • Helping hit free cash flow targets: Finance needs to hit the company’s targeted number for free cash flow. Liquidity Planning allows the treasurer to provide more accurate guidance to the CFO on how the company can hit those targets.

Liquidity at the Cash Manager and Analyst Levels

Cash managers and analysts work at the operational level. They are responsible for pulling and consolidating data to be used in the forecast. They track various forecast versions, typically on spreadsheets, and then compile and submit that information up the chain to the treasurer.

Additionally, treasury professionals at this level execute liquidity decisions. For example, if the company needs funding, cash managers might issue commercial paper. Or, if the company is interested in investing, these individuals would be the ones to make those investments.

Similar to the CFO/treasurer relationship, treasurers frequently challenge cash managers and analysts to deliver information swiftly and accurately. “Where are we in relation to our overall plan, and how are we faring in relation to the forecasts that we have in place? Liquidity planning is going to help them,” Gavaghan continued.

Liquidity Planning helps financial professionals at this level by:

  • Generating versions quickly: Faster and easier than a spreadsheet, Liquidity Planning allows users to copy/paste and generate a whole new forecast immediately.
  • Conforming to your forecast layout: Liquidity Planning is very flexible; users can tailor it to appear exactly the way it does on a spreadsheet.
  • Providing a structured workflow: Liquidity Planning provides users with the ability to do approvals, which allows for more cohesive workflows across the department.

Managing Liquidity in Record Time

While Gavaghan acknowledges that cash and liquidity forecasting is still being done with spreadsheets or other platforms, it’s extremely painful and way more work. Liquidity Planning creates immense efficiency gains and positions the entire finance organization for faster response times and better decision-making. Using insufficient tools to gather all this information and prepare it for the treasurer and the CFO holds back and restricts finance from making the right decisions, faster.

Again, when it comes to liquidity management, timing is everything. “It could be days, if not weeks of additional work,” he said. “Whereas in Kyriba, we’re providing a centralized way in which finance leaders can do those things on the fly.”