Cash flow is one of the most important parameters in any company. It seeks to measure the cash entering and leaving the company, thus providing an accurate picture of its liquidity, which is necessary to determine some basic aspects of the company. From what investments can be made to the company’s financing capacity or need, knowing its cash flow generally allows a company to anticipate any financial problems that may arise in the future.
However, despite its importance, the proper management of cash flow remains a real challenge for small businesses. In an environment as digitized as today’s, it is essential to have applications to properly manage the flow of a company’s collections and payments, which is not always possible due to the complexity of the applications and to the associated costs that are often involved. Treasury APIs can help streamline this essential business process.
What is cash flow and how is it used?
Cash flow attempts to measure the difference between the cash inflows and outflows that result from the most important commercial transactions. It will be positive if more cash is flowing in than out, and negative otherwise.
Cash flow gives the treasury department a powerful tool to determine the current liquidity situation, the liquidity forecast for the coming months based on its invoicing and, most of all, if financing is required to cover any outstanding expenses.
Why is cash flow important?
Companies engage in business transactions in their day-to-day operations to buy the goods they need for their activity and sell the goods or services they produce. These transactions are accounted for either as an expense (in the case of purchases) or as revenue (in the case of sales).
However, just because a certain business transaction has been billed doesn’t mean it has been collected. In many cases, the cash flows in after the transaction takes place, a period that could last months. In addition, unexpected events can occur that could prove disastrous.
However, some cash outflows, such as salaries, taxes, debts and rentals, take place on a regular basis, and must of course be paid. A problem arises if a company doesn’t have enough liquidity to cover these payments, and this can be further complicated if customers do not pay on time or if the invoices end up going unpaid.
In short, a company’s situation is closely related to its cash flow. Observing cash flows over several years can reveal if a business is doing well or poorly. In fact, if the cash flow is negative and this situation persists over time, the company risks becoming insolvent, which can lead to bankruptcy if the right decisions are not made.
Treasury APIs, the perfect tool for managing cash flow
Although ERPs currently offer powerful tools to manage a company’s cash flow, APIs can help speed up processes and provide solutions and products that are much better suited to the needs of a company’s reality and, above all, are much more affordable and secure.
Receiving information in time
The only way companies can confirm that a certain debt has been collected is by receiving this information from the bank. Thanks to bank statements, treasury department managers can find out in real time what their account balance is, any movements made and all the information on any collections and payments made during the period covered by the statement.
Treasury APIs allow statements to be received in real time, whenever the treasurer decides, instead of once a day, as is the norm when receiving traditional bank statements. This allows important accounting processes such as bank reconciliation – which has a major impact on decisions involving cash flow – to be carried out.
This information is particularly relevant in companies that have a constant cash flow. Such is the case, for example, of a supermarket, where transactions are paid in cash and sales almost always take place in real time. In this type of business, cash flow is particularly important, which makes the need to have all the information in real time in the accounting books even more pressing.
One of the APIs that can help speed up this process is BBVA’s Business Accounts API, which allows companies to automatically integrate the statements for the accounts they have associated with BBVA Net Cash into their company’s systems using the standard AEB43 market format.
Decision-making based on banking information
Treasury APIs can be easily integrated into other invoicing and accounting solutions to aid in making cash flow decisions. For example, suppose your customers pay you in 60 to 90 days, but your suppliers require payment in 30 days, and that you also have a default rate of 3%.
This historical information is important for projections of the business’s future collections and payments. If the liquidity forecast indicates a cash surplus, you can make decisions involving how to allocate that money; and if not, you can anticipate the lack of liquidity and request financing.
A tool tailored to your customers and vendors
The flow of collections and payments is a process that is closely related to the management of customers and vendors. All of them will demand every possible accommodation in commercial relations. That’s why it’s in your best interest to make everything easy and convenient and improve their experience, while also making your own company more efficient.
Contributing to this are both Business Payments and Business Collections, which are used to manage payments and collections, respectively, automatically and in a way that is tailored to the needs of customers and vendors. Businesses can thus improve the efficiency of their banking reconciliation processes, reduce operational costs and increase the satisfaction of their business relationships.