Roadmap for active
cash management
How to set the right course
Liquidity planning deals with the lifeblood of every company: the expected incoming and outgoing payments. The importance of comparing and planning all payment flows in advance has not been up for discussion since the turbulence of recent years at the latest. It is therefore not surprising that the topic is currently at the top of the agenda in many companies.
Excel solutions reach their limits
The different approaches to implementing liquidity planning are all the more surprising: it is not uncommon for people to still try to solve the issue with extensive and highly complex Excel lists. This is a Sisyphean task in view of the large amount of detailed information required.
Detailed planning requires not only specialized employees in the finance department, but above all the right information from the specialist departments and their upstream systems: Sales may know why a customer is not paying and can provide valuable info for risk assessment, while Purchasing has made special payment arrangements that need to be taken into account. Data collection in Excel is therefore not only a time-consuming balancing act, but also harbors great potential for error.
With short planning cycles on the pulse of time
In addition, planning cycles have shortened significantly. Forecasts at quarterly or even monthly level are no longer sufficient to ensure liquidity in the current dynamic environment. What is needed is at least a weekly rhythm with a realistic outlook for the next 20-30 weeks so that countermeasures can be taken in good time in the event of anomalies.
Success factors for liquidity planning:
- Timeliness: weekly rhythm, high automation, predictive analytics
- Uniform database: Merging of subplans, connection of upstream systems
- Transparency: Realistic planning, traceability, simulations
- Process control: Efficient workflows & communication
The planning process is crucial
Rolling, weekly planning leaves no time for lengthy deliberation. A lean and coordinated design of the planning processes is therefore crucial for success. Which key figures are needed? What is the exact process? Who has to do what and when? And how do the steps finally intertwine?
All of this must be firmly anchored and can no longer be mapped in this level of detail on a daily basis in Excel. Integrated planning solutions, with appropriate data preparation and mathematical algorithms in the background, help to focus on the analysis and planning of data - and not just on collecting figures.
Often underestimated: The control of payment flows
When it comes to practical implementation, the central task of "planning incoming and outgoing payments" does not sound particularly difficult at first. In practice, however, there is more to consider than meets the eye. This applies in particular to the associated open items, which must be included in the planning by means of contractual or historically determined payment targets.
In the case of open items that are already due, the age structure and default risk are added. The dunning process is also called upon here: What do I do with these items? How do I assess the probability of default? Can the amounts be mathematically predicted and distributed on the basis of previous payment behavior? Machine learning based on corresponding customer clusters helps to automate processes in this context. Process mining provides information about the potential for optimizing payment processes.
Other frequently underestimated points are the order backlog and planned sales. The integration of sales and operations planning provides important insights into the current order situation and makes it possible to determine expected incoming payments.
Therefore, appropriate transition bridges are also needed here in order to be able to use valuable information from the upstream systems and subplanning.
Building the bridge with integrated planning systems
Modern, integrated planning solutions make it possible to prepare and display all data in a consolidated form and to break it down at the push of a button depending on the information requirements. Mathematical algorithms and distribution keys support the automation and specification of planning results at the detailed level of weekly liquidity planning.
But the experience of the long-standing planning experts must not be neglected either: Manual adjustments should be possible at every level and can ideally be commented on in a way that is comprehensible to everyone and logged at . Appropriate workflows and release processes round off the system and provide a good overview of the current status of planning at all times. This creates the greatest possible transparency and reliability.
To ensure liquidity, income and expenses are always kept in view and countermeasures can be taken immediately in the event of any anomalies. Effects on liquidity can be easily simulated and included in planning. Of course, the next step also includes the planning or adjustment of existing credit lines, interest payments and redemption modalities.
Conclusion
In order to set the course for active liquidity management, detailed information on the order situation, payment terms, impending defaults through to existing credit lines and tax payments is required, which must be collated, planned and evaluated from a wide range of departments.
If possible, liquidity planning should take place on a rolling weekly basis and include important areas in the company by means of workflows in order to always provide an up-to-date overview of the availability of payment resources. Automations and a clear distribution of tasks accelerate the creation process.
In this way, liquidity planning can ensure the basis for the company's success even in turbulent times.
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Blog post author
Sebastian Jakob is head of the CFO Services business unit at celver AG. He is a certified Board Consultant and has been working in the Business Intelligence and CPM environment as a consultant, project manager and pre-sales since 2007. He currently advises clients from various industries on their planning projects.
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