Beating the Cash Flow Odds With Fintech


Guest Post by Russell Bennett/Chief Technology Officer, Fraedom

It’s a well-known fact that the majority of new businesses fail within their first five years. The reason is usually cash flow problems; in fact a recent study by U.S. Bank has shown that 82% of these business failures are due to poor cash management or a lack of understanding about cash flow.

Often the blame is laid firmly at the foot of the banks. According to the beleaguered business owner they lack the insight or the imagination to see the potential in their ideas and fail to lend the extra money needed. Or big business customers for exploiting payment terms.

Although these stats can appear depressingly harsh – there is a glimmer of hope. If poor cash flow management is identified as the main reason for business failure, then those who get it right stand a fair chance of success. Having a positive cash flow can be key in unlocking new business deals; driving incremental revenue streams and fuelling investment.

So how can businesses achieve a healthy balance? One of the main problems is the lack of a single point of visibility over all money going in and out of all their accounts. Without this, it is difficult to make informed financial decisions or to plan ahead efficiently. However, enhanced cash flow visibility is not always easy to achieve.

Organisations typically make use of multiple different payment types from cheques to credit cards to bank transfers – and often have no clear overall picture, either at a snapshot level or historically, of all the transactions they are making. Often, they are using outdated methods of dealing with payments, expenses, invoicing and reporting, or, even worse, have no planned approach.

This is why integrated payment management or consolidation is critical to businesses that want real time visibility of their spend and insight into cash flow.

Empowered to spend

The concept of integration is a familiar one, of course. Enterprise Resource Planning (ERP) systems have been around for decades now. ERP is now a ubiquitous technology across large corporate enterprises and increasingly across SMBs also.

Yet, at the same time as this enhanced level of control was being exerted on back-end processes, we also witnessed a counter trend where employees were armed with credit cards and cheque books and empowered to make significant business purchases.

This has clearly helped drive operational flexibility and business agility. But more important still, it has driven cash flow. So more businesses will be looking to take advantage of lines of credit and tap into free funds for a period to help with cash management. This will make it even more vital that these businesses have real time insight into all this activity.

The best way to achieve this is through a digital expenses platform and integrated payments tools, both of which should almost by default improve a business’s approach to how it manages cash flow. By having an immediate oversight through live reporting of all spending as well as balances and credit limits across departments and individuals, businesses can foresee potential problems more quickly and react accordingly. At Fraedom, we provide this kind of technology to many of our customers across banking and financial services sectors.

Digital trail for reporting

Such an approach also allows management to categorise spending and quickly see where costs are getting out of control or where they need to put in place cash flow targets that help ensure solvency. Cards can be cancelled or at least suspended quickly and easily, negating the need of having to go through to the issuing bank, while invoices can also be automated to streamline business payments. This allows business to keep hold of money longer and pay creditors faster.

Moreover, digitally transforming business expenses and payments, encompassing everything from receipt capture through to automated payments and invoicing, means there will always be a digital trail that can be collated and reported on quickly and easily.

In the future, the ongoing digitisation of systems will result in greater use of artificial intelligence and analytics-driven technologies. This will help organisations to more accurately predict their future spend, thereby giving them early insight into potential upcoming cash flow issues and enabling them to look ahead into what is going to be happening in the market moving forwards.

The emergence of digital expenses platforms and integrated payments tools won’t negate the basic need for businesses to make more money than they spend. But it’s an exciting development for those determined to defy the odds by adopting careful cash flow management.