The Benefits of Real-Time Cash Flow Monitoring

Monthly reports are useful, but sometimes companies need to know the state of their cash flow ASAP.

Many companies report on their cash flow once every month. Thanks to new technology, some businesses are shifting to a faster cadence — daily, in some cases. And there can be some solid benefits to real-time (or nearly real-time) cash flow monitoring. 

Businesses aren’t using Excel to do this. Instead, a new breed of software can connect to multiple systems, like a company’s ERP or accounting platforms, its sales CRM, its bank accounts and other sources. Then it combines all the relevant data in an easy-to-understand dashboard that’s constantly, automatically updated. 

Real-time monitoring might be more common at large enterprises, but it could benefit midsize and smaller companies, too. 

Improved decision-making under pressure

In a fast-moving crisis, company leaders must make good decisions swiftly, especially when it comes to spending and liquidity. To do that, they need an accurate, up-to-date picture of their cash flow. 

The financial ups and downs of 2020 are a good example. Suddenly, businesses experienced a sharp change in revenues while facing unexpected demands and obstacles in their operations. The situation changed by the day and even the hour. 

Owners and leaders needed to understand if they would have the money to pay for salaries, inventory and other expenses so they could make the best decision under the circumstances. Companies with real-time reporting had a clearer picture of their needs and capabilities. 

Early warning of potential problems 

Weekly, monthly and quarterly reports show how cash flow trends over time so that outliers — like one particularly bad day — don’t receive exaggerated attention. That’s a good thing. 

But hourly or daily reports can be helpful, too, because they alert companies to severe problems quickly. Businesses should be careful not to overreact, but seeing a sharp, consistent decline over several days allows them to make adjustments as soon as possible, when an intervention might have a greater impact. 

Waiting weeks or even months for a report would only allow the problem to worsen.  

Greater ability to optimise working capital 

Real-time cash flow monitoring isn’t just about the worst-case scenario. It also empowers companies to take advantage of opportunities. 

For example, Company A might experience a surge in cash sales, beyond its immediate needs, far in excess of its short or mid-term expenses. 

Real-time reporting shows the company that it can put that cash to work immediately — for example, by negotiating a large discount on its next inventory order because the company can pay upfront. Or Company A could use the money to pay its invoices early and claim a discount.  

Otherwise, those funds would sit in an account, not earning much of a return. 

Who needs real-time cash flow monitoring? 

As mentioned above, many enterprises find real-time monitoring helpful because their financial situation has so many different moving parts, especially if they are operating globally or have multiple business units. Having a constantly updated report can give their finance and treasury departments more clarity. 

But real-time cash flow monitoring can also be useful for companies that often have big swings in their revenue and expenses. Durable goods, new construction and other cyclical businesses need as much warning as possible if their cash flow starts to suffer. So do seasonal businesses. 

Fast-growing businesses also benefit from faster reporting on cash flow. After all, they can spend a great deal of money winning and servicing new orders. If they’re not careful with their cash, they could find themselves unable to make payroll or meet their debt obligations. A constantly updated report on cash flow helps prevent them from making a business-ending mistake. 

To be clear, not every business needs real-time monitoring. Smaller companies or those with a steady, predictable level of revenue and payables might get all the information they require from a monthly or quarterly report. 

Potential obstacles to real-time cash flow monitoring 

Today’s technology makes it easier to provide hourly or daily reporting on cash flow, but companies may encounter challenges. 

• Sometimes it can be difficult to get all the necessary data quickly from all the relevant accounts and platforms. Data connections break. Source systems take longer than expected to update. 
• Organising the data can be another obstacle. A large amount of data will probably be involved, and it needs to be accurate and standardised.
• Compliance rules could put limits on how institutions share financial information, slowing down data collection. 
• Getting organisational buy-in can be tough, too, especially if the stakeholders have full workloads or don’t see the value of faster reporting. 

These problems shouldn’t be insurmountable, but if companies decide to implement real-time monitoring, they should have a plan to deal with them.

The bottom line on real-time cash flow monitoring 

Cash flow is one of the most important factors in a company’s success and longevity. Timely, accurate reporting is always key, but some companies — especially large enterprises or cyclical, seasonal or fast-growing businesses — may need reporting that’s more current than a monthly or quarterly report. That’s where real-time cash flow monitoring comes in. 

If your reporting uncovers a problem with cash flow, C2FO offers best-in-class solutions that offer convenient, affordable access to working capital. Learn more here.