Cash Flow Visibility: Importance and How to Improve It ?

Founders and financial controllers must keep track of their cash flow and financial records to identify revenue leaks and potential growth opportunities. A positive cash flow indicates that your company’s liquid assets are growing, enabling you to fulfil your obligations, maximise shareholder value, and provide a cushion against future challenges.

Cash flow visibility offers a clear and comprehensive view of the sources and uses of cash over a specific period. Essentially, cash flow visibility is the clarity and insight into the inflows and outflows of money that are vital for the sustenance and success of any budding enterprise. It enables better financial planning, decision-making, and risk management.

This article will discuss how you can leverage technology to gain cash flow visibility.

What is Cash Flow Visibility?

Cash flow visibility is a comprehensive view of all cash inflows and outflows in the company's bank accounts. It goes beyond knowing how much money is in the company’s bank at a given moment. Financial visibility aids in understanding the source of income, expense heads, payment cycles, and related discrepancies.

Cash visibility is the key driver for several strategic business decisions. Accurate cash flow visibility requires updated data on cash position from all payment channels, including cash receipts, bank accounts, credit or debit cards, and digital wallets. It helps identify patterns and trends, providing valuable insights into the company’s financial health. Precise cash flow forecasting requires accurate payment and expenditure records.

What Does Cash Flow Indicate?

Cash flow can be positive, indicating that more money is coming in than going out, or negative, suggesting that more money is being spent than earned. Financial managers can identify potential shortfalls or surpluses in their cash flow with proper financial visibility. It helps make informed decisions about rescheduling payment cycles, scaling operations, and raising funds.

What are the Three Types of Cash Flow Statements?

The types of cash flows used for treasury management are:

Operating Cash Flow (OCF): Cash generated from day-to-day business operations, including revenue generation, inventory management, and payment collection. It reflects short-term operational viability.
Investing Cash Flow (ICF): Details of the company's capital expenditures or investments in assets such as property, equipment, and securities. Positive investing cash flow shows that the company is investing in growth opportunities, while a negative one reveals that assets are being liquidated.
Financing Cash Flow (FCF): Record of cash movement associated with shares, loans, and dividends. It indicates the firm's long-term financial structure.

What are the Key Reasons for Poor Cash Flow?

Poor cash flow occurs when the cash outflow of a business exceeds the inflow over a specific period. It can severely impact the stability and growth of a company. It limits the company’s ability to reinvest in operations, fulfil debts, or maintain inventory, potentially leading to a solvency crisis. Without adequate cash reserves, you might miss out on opportunities for expansion or investment.

Common reasons for poor cash flow are:

Delayed Customer Payments: Slow payment collection or delayed invoice payments by customers can significantly impact cash flow. It leaves the company with insufficient funds to pay suppliers, employees, and other expenses in the future.
Unplanned Expenses: Unexpected expenses such as equipment breakdown, legal fees, or regulatory fines can deplete cash reserves.
Inefficient Invoicing and Collections: Inaccurate, delayed, or missed invoicing can delay payment collection and negatively affect cash flow.
Lack of Financial Visibility: If you cannot see what is happening to your cash here and now, you cannot control cash flow effectively. This can be due to inefficient legacy software, data silos, and a lack of means to track cash at a transactional level.
Poor Inventory Management: Holding excess inventory ties up capital and may result in cash flow constraints, while insufficient inventory can lead to lost sales opportunities.
Regulatory Compliance Costs: Compliance with regulatory requirements may impose additional financial burdens on startups, affecting cash flow if not adequately budgeted.

Primary Barriers to Cash Flow Visibility

Tracking and predicting cash flows can be complicated due to the dynamic nature of financial transactions and several external influences. According to a recent study, 44% of the respondents say that the lack of visibility over cash flow makes them less confident that their organisation can remain competitive over the next 12 months.

The main barriers to cash flow visibility are:

Complex Manual Financial Processes: Relying on manual data entry and disparate financial systems can make consolidating and analysing cash flow information in real time complex. Manual data entry and financial document processing is time-consuming and prone to human error.
Lack of Real-Time Financial Data: Companies struggle to keep up with daily cash inflow and outflow. They rely on monthly or quarterly reports, making it challenging to track and respond quickly to changes in cash flow. Extracting data for foresight and strategic planning from manual reports is also tedious.
Inadequate Financial Reporting Tools: Traditional spreadsheets and accounting tools cannot provide real-time visibility into financial data by design. Outdated or incompatible accounting software and insufficient IT infrastructure can hinder the implementation of automated cash flow tracking and reporting systems.
Insufficient Analytical Capabilities: A lack of financial expertise or analytical tools within the organisation can impede the interpretation and utilisation of cash flow data for decision-making.
External Factors and Dependencies: External dependencies, such as reliance on suppliers or partners, regulatory changes, or market fluctuations, can introduce uncertainties and disrupt cash flow visibility.

Overcoming these barriers requires a holistic approach to cash visibility encompassing technological upgrades, process optimisation, cross-functional collaboration, and a cultural shift toward embracing data-driven decision-making.

Why is Cash Flow Visibility Important?

Proper cash management is critical to a business's financial stability and growth. As a result, cash flow visibility is crucial for new-age companies to navigate market dynamics and uncertainty. It helps identify patterns and trends in cash flow, allowing businesses to anticipate and mitigate potential cash shortages.

The Benefits of Cash Flow Visibility

Cash flow visibility helps businesses with the following:

Data-backed decision-making: Reliable cash flow insights help founders and financial managers make informed decisions about operations, expenses, and fundraising.
Proactive Risk management: Financial visibility allows businesses to mitigate shortages and plan for future expenses.
Enhanced Cash Management: Greater cash visibility enables businesses to optimise payment cycles. Financial controllers can keep track of cash movements and identify areas of improvement to maximise the company’s working capital.
Improved Workflows: Automating cash management streamlines internal operations and eliminates errors. It ensures a more productive work environment with fewer repetitive tasks.
Increased Confidence from Stakeholders and Investors: Investors and stakeholders place great value on transparent and stable cash flow management. They use it to assess the sustainability and potential of the business.

Key Strategies to Enhance Cash Flow Visibility

Having good cash flow visibility helps in identifying potential cash shortages or surpluses. It allows businesses to take proactive actions to manage their finances effectively.

Strategies that can help enhance cash flow visibility in your business are:

Implement Efficient Invoicing and Payment Systems: A streamlined invoicing and payment process helps reduce the delay in receiving payments from customers. Consider using electronic invoicing and online payment options to speed up the collection process.
Embrace Automation: Automating financial processes like updating of records and bank reconciliation reduces errors and saves time. It also provides real-time visibility into your cash flow.
Centralise Financial Reporting: Simplify the compilation and analysis of financial data through a centralised platform. It provides all stakeholders with a comprehensive view of the cash flow, making it easier to collaborate and maintain accuracy in cash forecasting.
Regularly Update Financial Records: Operate on the most current data by keeping your accounts receivable and payable updated. It helps eliminate misinformation, identify discrepancies, and make informed decisions.
Monitor Your Cash Flow: Keep a close eye on your cash flow by creating daily or weekly reports. These reports help identify potential issues early on and allow you to take necessary actions.
Negotiate Favourable Payment Terms with Suppliers: Consider negotiating longer payment terms with your suppliers to improve your cash flow. It can give you more time to pay off your debts and manage your cash flow effectively.

How Does Mysa Allow for Cash Flow Visibility?

Mysa is a BAT (banking, accounting, taxation) solution for new-age companies striving to manage their finances and cash flow. It automates cash management processes to reduce the effort and time spent on manual financial processes. It provides real-time cash visibility by combining data from multiple payment channels and centralising data for easy cash forecasting.

The platform ensures transparency for founders of digital-first companies and assists them with treasury management. It provides an accurate view of the business’s cash position by compiling data from its bank accounts and other financial records. With Mysa, you can adopt a proactive approach to financial management.

Here’s how Mysa helps maintain cash flow visibility:

Real-time Financial Data Tracking: Mysa's intuitive real-time dashboards ensure that founders and finance managers can track their financial data in real time. Companies can monitor their cash flow, expenses, and revenues in real time instead of waiting for monthly or quarterly financial reports.
Automated Invoicing and Payments: The Slack-bot-driven platform allows you to automate the manual invoicing and payment processes. It reduces administrative overhead and accelerates the cash cycle.
Automated Payment Reconciliation: Integrating with various payment channels such as bank accounts, credit cards and online payment gateways, Mysa automatically reconciles payments. Matching payments with invoices helps flag discrepancies, enabling faster identification and resolution of issues.
Integration with Financial Reporting Tools: The platform integrates with popular financial reporting tools like Zoho Books. It eliminates the need for multiple data entry and ensures accurate financial reporting.

Founders can benefit from Mysa's capabilities to facilitate financial visibility through:

Streamlined Invoicing: Startup founders are overburdened with operational tasks, and cash flow is only sometimes on their priority list. Mysa automates invoicing and payment processes, reducing the time it takes to receive payments. It eliminates cash management errors and maximises the efficiency of treasury management.
Real-time Financial Insights: The platform provides real-time insights, combining data from various sources. Founders can use it to review their finances and get cash visibility in real time.
Holistic view and expert advice: Mysa provides a holistic view of the company’s cash flow by keeping all financial records up to date. Additionally, you can get expert advice for cash management and monetary forecasting help through Mysa’s CA assistance.

Cash flow visibility is not an optional luxury for startups but a foundational element of their treasury management systems. By addressing the barriers to cash visibility, embracing modern strategies for cash management, and leveraging a financial management platform like Mysa, founders can make financial decisions with confidence and precision.

Connect with experts at Mysa to empower your financial decisions.

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Cash Flow Visibility: Importance and How to Improve It ?

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