Times are hard, money is tight, a bird in the hand is worth two in the bush, and the link between using cloud software and services and improving your cash flow is well established.
However, it pays to look beyond the obvious. The Capex v Opex debate is more nuanced than ‘operating expenditure is better than capital expenditure’, as purchasing decisions have implications for financial management, financial reporting, tax, remuneration structures and more (as Cloud Pro explains here), and in addition to the more obvious benefits of the pay-as-you-go approach there are many other ways that businesses can use cloud-based software and services to improve cash flow and cash management.
For Dave Hartshorne, a director with the automotive web design and development company Dijitul, improving cash flow was as simple as replacing his on-premise accounting system (from Sage) with a cloud-based system (from KashFlow), in part because of the accessibility of the new system and in part because of the features it offered.
"The ability to input information and manage the finance function without being at a particular PC and in the office has been a huge benefit to the two of us responsible for the system,’"says Hartshorne, and so has the ease with which they can exploit credit control features: "Our previous software didn’t really have smart features such as the automated credit control email," he adds.
As the cloud-based system can be configured to automatically send email alerts to customers to remind them when payment is due, Dijitul uses it to send alerts two days before the due date and then three, five and seven days later – an approach that Hartshorne says has improved cash flow by around 50 per cent. ‘We are managing our customers far more efficiently,’ he says.
Before Hartshorne had access to features such as these he had been trying to manage cash flow by moving information from his old accounting system into a spreadsheet – with disappointing results. "Neither incomings or outgoings were easily accessible,’" he says. But if you must use a spreadsheet to manage cash flow planning (and it remains the weapon of choice for many), even this can be improved by cloud-based software and services.
On-demand spreadsheet tools such as those included in the suites offered by Zoho, Google Docs and Microsoft Office 365 (and many more spreadsheet-only tools) have some advantages over their traditional on-premise predecessors. As well as being more accessible, they can support more collaborative cash flow planning, and will make version control easier than juggling the numerous email attachments you might otherwise have to grapple with.
It is a testament to the ongoing popularity of the spreadsheet (online and off) that if you Google ‘cash flow’ and ‘spreadsheet’ you will find all sorts of spreadsheet templates (many free, some not) designed to help you manage cash flow. But whilst this approach may be better than trying to do this manually, spreadsheets are not the most effective way to manage cash.
According to research from Aberdeen Group, companies that can predict their cash flow needs more accurately than their less well-performing peers are more likely to be doing this with the help of specialist software than with the general purpose spreadsheet; which is, perhaps, unsurprising.
More interestingly, the research also indicates that some types of specialist software were more effective than others, and online tools for balance reporting, forecasting and account reconciliation (which can be provided by various types of software or service) emerged as the ‘technology enablers’ that most effectively help organisations to predict their cash needs, even when fragmented financial functions and systems result in only partial views of cash.
This is not so say that other specialist software and systems cannot be used to improve cash flow planning and cash management; they can. Many types of software that would once have been beyond the reach of small and medium sized organisations (unless they had deep pockets) are now being made accessible and affordable by cloud-based specialists.
For example, Kyriba, Reval and Treamo are among the organisations offering cloud-based treasury management systems that can be used to improve various aspects of cash analysis and management, and even achieve global cash management – something that was previously available only to the very largest multinationals with harmonised ERP systems and IT infrastructures.
Dassault Systèmes, a provider of 3D software, has gradually adopted cloud-based tools from Kyriba for cash management and other treasury functions and used them to underpin Dassault’s plans to harmonise its banking worldwide and to implement full cash pooling.
"We wanted to centralise cash in one place so that we had our hands on it and could better control it and manage its investment,’" says John Colleemallay, director of treasury and financing at Dassault, and this was a boon in 2010 when it expanded by making a major acquisition. ‘This helped us to move very fast,’ he explains, "and we were able to and move all of the required funds overnight,’ despite 27 countries being involved in these financial transactions.
Adaptive Planning, Centage and Host Analytics have also put systems into the hands of the many – for budgeting, planning and performance management.
This meant that Liverpool-based charity Alternative Futures Group could ditch spreadsheets (for scenario planning and modelling), which was invaluable when public sector funding pressures fundamentally changed its economic operating environment. "In the past, it could take days in Excel to apply changes to assumptions or plans and the results would not always be accurate," recalls David Smith, the charity’s head of financial management and performance, but now he can make complex changes to assumptions or plans and quickly see the potential impact on the balance sheet and on cash flow.
Cloud-based software can also support a changed in approach to managing cash flow. Setting periodic budgets, substituting actual figures from the management accounts on a month-by-month basis and then projecting future cash requirements, produces cash flow forecasts that are always out-of-date, incomplete and tend to be underestimates.
It is possible to get a real time view of cash commitments and more accurately predict requirements using ‘commitment accounting’, but until specialists such as Ariba, Compleat and Proactis, made cloud-based electronic procurement and spend management software accessible and affordable, commitment accounting was too complex, time consuming and costly for most businesses to implement.
A change in approach has been good for cash flow at the holiday group Bourne Leisure, which has used spend management software from Compleat to automate purchasing processes and introduce commitment accounting. An interface between the cloud spend control software and the leisure group’s accounting system means that a cost can be captured in the accounts at the point of ‘commitment’ when a purchase order is raised, and provide a real-time view of cash needs.
"This visibility is extremely valuable. Before, we had to go to each individual site for such information, which was time-consuming and not always accurate,"says Samantha Mitchell, operations director, who describes the improvement to cash flow forecasting as a ‘massive win’ for the leisure business.
Cloud-based services can also improve they way you spend money, as Neil Robertson, chief executive of Compleat explains: "Consolidating your corporate spend to nominated suppliers and negotiating better prices and payment terms can help companies to reduce their overall spend by between 1 and 4 per cent."
So as well as helping you to manage your cash more efficiently cloud-based systems can give you more cash to play with – which brings us back to where we started with the well established benefits of the pay-as-you go approach. As Robertson wryly observes: "The most effective way of reducing cash flow pressures is actually to spend less."
Five additional ways to improve cash flow
- Train staff in effective credit control procedures;
- Pay invoices promptly to minimise late fees and lost discounts;
- Always check the exact name and legal status of businesses you supply;
- Periodically reassess the financial health of suppliers and customers;
- Read the Institute of Credit Management guides to managing cash flow here.
