Cash flow is the lifeblood of any business, and managing it effectively is crucial for long-term success. According to a recent study from the Wall Street Journal, 50% of CFOs prioritized cost management in 2023 and 74% agree that labor costs are more than likely to increase. To prepare for increasing costs, 84% of CFOs plan to utilize digital technologies to automate tasks, enabling organizations to focus on more valuable efforts.

For too long, traditional cash management practices have relied on manual processes. This has made it difficult for organizations to navigate financial uncertainties efficiently. Fortunately, the rise of artificial intelligence (AI) has created new possibilities for businesses to overcome the challenges of traditional cash management.

Top Challenges of Traditional Cash Flow Management

Traditional cash flow management methods can hinder organizations ability to adapt and thrive in today’s dynamic business environment. Some of the most common struggles businesses face when managing their cash flow include:

• Outstanding receivables

• Manual processes

• Inefficiency

• DSO improvement

• Inaccurate and outdated data

• Legacy systems and siloed data

• Slow process speeds

• High operating costs

This only scratches the surface of the challenges created by traditional cash flow management processes. Additional challenges associated with traditional approaches can look like:

• Manual data entry and spreadsheet dependency: Relying on spreadsheets and manual data entry is not only time-consuming, but also prone to errors. This can lead to inaccuracies in cash flow forecasts and financial reports, severely impacting decision-making.

• Limited visibility: Traditional methods often provide a retrospective view of cash flow, making it difficult to identify real-time trends or upcoming challenges. This lack of visibility can result in missed opportunities or unexpected financial crises.

• Risk assessment complexity: Assessing financial risk and identifying potential opportunities in traditional cash management can be a cumbersome process. Many organizations struggle to predict market fluctuations, supplier disruptions, or changes in customer behavior effectively.

• Resource intensity: The personnel and time required for manual cash flow management can be resource-intensive. This distracts finance teams from more strategic tasks and inhibits the agility of financial decision making.

For organizations to thrive in today’s ever-changing business landscape and sustain their financial stability, effective cash management is critical. This is particularly important as “cash is key” to meeting financial obligations, meaning it needs to be proactively managed to maximize earnings, remain solvent, and maintain competitiveness.

While the challenges mentioned above can complicate cash flow management, recent advances in technology, such as AI and machine learning, are making it easier for organizations to overcome them. 

The Benefits of AI-Powered Cash Flow Management

According to McKinsey, roughly 70% of organizations worldwide will have adopted some form of AI by 2030, which will add approximately $13 trillion to the global economic output. The study further stated that by integrating AI, “the average business will see its free cash flow soar by 122%. But those who don’t have an AI plan by then could see a 23% decrease instead.”

A major driver behind increased cash flow and more efficient management is that AI provides organizations with a more direct view of their finances. For example, the majority of AI tools can provide insight into business income and expenses, inventory or assets, cash balances and reserves, and more.

Additionally, AI solutions can quickly identify gaps or potential risks, enabling organizations to quickly mitigate risks and avoid potential disruptions. Data is gathered and presented in detailed reports or dashboards that enable individuals to make data-driven informed decisions more quickly.

The intuitiveness of AI doesn’t stop there. Here are five additional benefits of utilizing AI in cash flow management.

Real-Time Data Analysis

Without real-time data analysis, companies are likely to stay behind the competition. Unlike traditional cash flow management tools, AI tools can quickly process vast amounts of data in real-time, providing instant insights into an organization’s cash position. This allows for proactive decision-making and quick response to emerging financial opportunities or threats.

“A lot of today’s companies are chasing data,” explained Sonny Spencer, Director of Finance at Veeva. “Without access to real-time data, organizations are constantly adapting to customer and vendor changes. Essentially, they’ll always be behind and not have the competitive advantage when managing their cash flows.”

Predictive Analytics

Utilizing AI-powered algorithms can forecast cash flow more accurately than traditional methods. These algorithms can more quickly identify correlations in data that are more difficult for humans to see. For example, predictive analytics tools can analyze customer data, sales data, CAPEX data, SKU data, transactional data, and other granular information and provide predictions that can inform, clarify, or re-direct cash flow as needed.

Some of the cash flow predictions that analytics technology can make include:

• Income for a specific period of time

• Increase or decrease in working capital, cash, and cash equivalents

• Cash flow from investing or financing activities

• Capital expenditure

High-quality predictive analytics tools don’t just provide predictions — they explain why it made the prediction. Essentially, the platform explains what factors are driving the prediction, enabling decision makers to make better, more informed decisions.

Risk Identification and Mitigation

A major benefit to using AI in cash flow management is its ability to analyze large amounts of data from a myriad of sources. This is particularly helpful in risk identification and mitigation.

Essentially, AI and machine learning engines can identify potential risks by continuously monitoring a range of variables. This includes economic indicators, supply chain disruptions, or customer payment behavior. Based on the information, the platform generates real-time prediction models that highlight potential risks which risk managers or security teams can then respond to quickly.

For example, AI platforms can analyze and evaluate large amounts of unstructured data regarding risky customer behaviors or processes in an organization’s operations. AI algorithms can then look at behavior from previous incidents and transpose them as risk predictors. With these early warning systems in place, organizations can take preventive measures more quickly, such as adjusting inventory levels or renegotiating supplier contracts.

Cost Efficiency

Implementing AI can reduce the manual effort required for cash flow management, freeing up finance professionals to focus more on strategic initiatives. This can lead to cost savings and improved operational efficiency, saving valuable time and freeing up leadership to focus on more value-adding tasks.

Enhanced Decision-Making

Finally, AI-generated insights provide finance professionals with a data-driven foundation for their decisions. According to Max Dame, Tesorio’s Vice President of Finance and Operations, AI’s ability to recognize patterns and translate them into future predictions is incredibly valuable for improving decision making processes and more effective planning.

“Unleashing AI on the vast amount of data you have will be incredibly helpful in the future,” Dame said.

AI can help organizations make better-informed choices regarding investments, budget allocation, and working capital management.

Unleashing the Power of AI on Cash Flow Management with Tesorio

Traditional cash flow management methods are no longer sufficient for today’s fast-paced business world. Integrating AI-powered solutions like Tesorio can help organizations identify risks, opportunities, and actionable ways to improve cash flow.

To succeed in this transition, however, it’s critical for organizations to adopt and follow best practices, viewing AI as a strategic asset in the finance function that ultimately drives long-term financial success.

See how AI-powered cash flow management leads to faster collections, more accurate forecasts, and personalized customer communication by watching our on-demand webinar with industry experts.