The neoteric allure of cash management automation for small businesses

The neoteric allure of cash management automation for small businesses. It is time for a reality check…

“Making more money will not solve your problems if cash flow management is your problem” Robert Kiyosaki

Living in a rapidly expanding North Dallas suburb, my family is a big supporter of small sized businesses which are in plenty here. I like the fact that their services are unique with an individual identity that define them. Many of these local business owners are good friends of mine, and in recent times, I have heard scintillating stories about “surviving the great cash management crisis of 2020”, and I don’t have to go into the rationale of what caused the situation – we all know…

That said, the ever-resonating theme about managing money “smartly”, is something that I constantly hear from these local businesses, and it resonates so well with the quote above by Robert Kiyosaki, so much so, that I am literally reproducing it from a poster that one of my friends actually has hanging at the entrance to his modest office, and serves as my inspiration to write this article.

So why is this about the neoteric allure of cash management automation?

A typical google search will reveal more than 180 million hits in about 0.68 seconds to what a gazillion experts think about managing cash flows better. So you may want to ask me what really is neoteric (which by the way is a fancy way of saying modern) about this concept, and you may be tempted to caution me about peddling “old-wine-in-a-new-bottle”.

Bear with me while I explain further…

So first off, let us put a pin on some simple statistics that are common knowledge (or in other words, I am not making this up)

  • The US has more than 32 million small businesses,
  • that account for about 99% of all US businesses,
  • and they create 64% of new jobs annually,
  • and about 31% of them closed down in recent times,
  • and almost all of them due to their cash flows being unmanageable

In another intriguing statistic for 2020, the number of new small businesses that opened in the US (4.4 million) was more than the number of new born infants (3.6 million) and about 90% of these businesses closed down, a majority of them citing lack of sufficient cash flows as a primary reason.

That said, a fortunate number of these businesses survived the pandemic, by either –

  • re-structuring their businesses, where possible, to online selling models,
  • focusing on improving their product / service quality,
  • or focusing on better customer retention strategies

But the bigger takeaway was that a significant majority of the surviving businesses realized that their primary focus now would be on increasing stability to their cash flows.

No surprises there. I actually asked this specific question to every one of my local small-business-owner-friends, and got a unanimous YES from all of them on this specific criterion.

So coming to the point of why this is a neoteric allure…

These businesses have been asking, nagging and in some cases, demanding their banks to provide them with the right (and simple) solutions to manage their money and cash flows better. The banks have been listening – Literally every bank that I speak to as a part of my job on a daily basis have shifted their focus (or are in the process of doing so) to this hot segment of opportunity, and the drive to become their client’s principal banker is a mantra that I am sure they chant every morning as they start work.

On the other hand, the mammoth technology solutions that were traditionally driving cash / liquidity management solutions that these same banks provided to their large corporate clients were seen to be way too complex and confusing for these smaller businesses, so….

  • out goes the theory about old-wine-in-a-new-bottle, and…
  • in comes our neoteric allure – Which in this context is literally the re-invention of the compact and simple automation of cash management solutions that are tailored for these small businesses

So what really are these small businesses asking for?

Once again, I am not going to make this up. I actually spoke to literally every one of my local business owner friends and asked them this question. Their responses were predominantly unanimous.

I am a big fan of the Latin principle of “Omne Trium Perfectum”, or what many of us commoners refer to as “Good things are perfect in threes”, and that applies in this case too. So here are the three big asks of these small businesses, and there is absolutely nothing fancy about their needs.

1. “TRUE” CASH VISIBILITY

You may say “my bank gives me an online banking system that shows me the balances real-time, so what’s the big deal?”

Fair point, but what these business want is just a little bit more. They want to –

  • see a simple summary that consolidates all their accounts across ALL their banks (not just the bank’s website they are logging into)
  • see all their DDAs, loans, cards, investments together
  • view all their business and personal accounts in one pace, yet keep them visually distinct
  • view all their accounts across different physical locations in one place (some of my friends have their businesses running in multiple Texas cities)
  • get simple alerts about situations when balances go below (or above) a certain threshold
  • view, and be reminded about all invoices and bills that they have to pay and get paid for

Simple needs, right? Note that almost every one of these businesses do this today on spreadsheets and they spend 60 to 90 minutes every day on just these simple tasks which could otherwise be automated via simple tools that their banks can provide them

2. “SMART” CASH FLOW FORECASTING

Once again, this is a task that in the past (and sadly even in current times) has been achieved through spreadsheets by these small businesses, while those that could afford fancy tools subscribe to them at a higher cost, paying for complex solutions to solve a simple set of needs, which are to –

  • create simple forecasts for one or multiple accounts to create short term (10-15 days) forecasts
  • view easy-to-interpret visual representations of their cash flows, past, present and future
  • and since we are talking about future, a smart use of AI / ML to predict how the cash flow is going to look like in coming days / weeks (not months / years)
  • add these predictions into the cash flows to see the potential impact
  • pull in data from invoicing / accounting data (even excel or manually entered data) to make the data complete
  • play around with the data to create “what-if’s”

3. “AUTOMATED” CASH CONCENTRATION

As I mentioned earlier, many of these businesses have accounts in multiple locations and banks, and what may seem to be simple task to optimize their cash positions across these accounts is a herculean task that takes them multiple spreadsheets and manual fund transfers across multiple bank websites. So what they truly need here is the ability to –

  • setup very simple rules (no complex liquidity management sweeps, please) for automated cash movement / concentration across multiple accounts within or across banks
  • automate the movement of this money at specific frequencies (some of them told me that they even do this daily, and others weekly) and at a specific time of the day
  • get a nice and crisp report that shows the details of all the automated money movements in one view

So what do banks need to do to help their customers with this?

Some banks have already started implementing simple tools to help their customers in one (or maximum two) of these areas, but unfortunately only a very small subset of these banks are truly addressing all the three needs described above as one holistic solution for their customers.

In my view, what banks needs to be doing is to –

  • UNDERSTAND the emotional and contextual needs of the customer and their interactions. Banks are investing heavily in this space and looking at how the digital experience can become a lot more contextual by deriving the right intelligence from interactions and past historical trends of customers (I call this “Consumerization of Commercial Banking” – My earlier article on this topic can be accessed here)
  • SIMPLIFY the solution with very light components enabled through a self-service digital experience that is tailored for smaller businesses and avoid leveraging large liquidity management solutions typically used by large corporates
  • MODERNIZE their ability to integrate with the broader banking ecosystem by reducing dependency on prior file-based data sharing mechanisms like MT940/950, and replace them with API based ecosystems that enable instantaneous and real time sharing of data through an Open Banking framework
  • STRENGTHEN their technology infrastructure to focus on increased automation and customer self-service enablement, thereby REDUCE operational costs significantly

This is one space that I am curious to see evolving in the coming years, and I know that I will hear more about it from my local business-owner friends…

About the author

BalakrishnanPersonal blog of Balakrishnan Narasimhan, Senior Vice President and Head of Solution Consulting, iGTB – Digital, Payments and Cash Management – Americas


Disclaimer: The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author’s employer, organization, committee or other group or individual

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