Effective and proactive credit and liquidity risk mitigation relies on forecast accuracy and effective cash management. Find out how advanced treasury risk management software helps CFOs achieve the same.

Businesses, irrespective of size, revenue, or industry, need proactive strategies to handle critical financial risks stemming from liquidity issues, market fluctuations, regulatory changes, operational challenges, and fluctuations in foreign exchange and interest rates. For CFOs, this would mean reduced profitability, inadequate liquidity, lower returns, operational inefficiencies, and missed opportunities. To strengthen risk management, they need a robust solution that offers advanced forecasting, real-time bank data, comprehensive instrument tracking, etc.

This is where an advanced treasury management system comes into play. It helps CFOs redefine financial risk management by gaining complete control over their treasury functions and driving informed decisions. Here are six ways in which an advanced treasury management system helps CFOs manage risk more effectively.

AI-driven forecasts with improved accuracy

CFOs need granular level forecasts for accounts receivable (AR) and accounts payable (AP) to understand the timing and amounts of AR and AP-related cash flows in detail. This enables them to take proactive measures to mitigate financial risks by negotiating better payment terms with suppliers or accelerating collections from customers.

AI-led AR and AP forecasts use customer-specific models to improve the auto-ML accuracy rate for these categories. Depending on the availability and quality of data, these custom AI models leverage invoice information, credit memos, debit memos, deductions, purchase order numbers, and sales order numbers and help CFOs get a snapshot of expected cash flows and variance at an individual invoice level.

Daily cash forecasts powered by Auto-ML features

Cash forecasting is usually done weekly, monthly, quarterly, or annually. It’s not humanly possible for businesses to prepare daily cash forecasts. However, getting daily cash forecasts can help CFOs not only make informed decisions but also rethink and streamline debt repayments and investments, enhance contingency plans, and detect liquidity issues early on.

Advanced treasury risk management tools offer auto-ML features to automatically create daily cash forecasts by gathering historical data. The treasury management system leverages all prior transactions in each cash flow category to come up with a forecast. Every time the forecasting process runs, the system reviews and picks the best-fit model with the highest accuracy from hundreds of permutations. Moreover, for categories with lower transactions, CFOs can import schedules and use simple,

Excel-like formulas to generate forecasts automatically.

Get daily cash visibility

The primary goal for any treasury team and CFO’s office is to have complete visibility of the daily cash position and find out how much cash is present in which bank account. This helps them ensure the business has sufficient funds to carry out daily operations while making informed investment decisions.

Treasury solutions that enable daily cash visibility help CFOs view bank balances graphically across all bank accounts in a single, centralized location. Businesses can configure views by bank, entity, currency, or region and double-click to drill down using dynamic graphs and dashboards.

Get accurate bank data

Getting real-time and accurate bank data is crucial to manage liquidity, adjust cash reserves, optimize cash flows, and detect anomalies and unauthorized transactions. It also helps identify common patterns, allowing CFOs to take swift action to mitigate fraud, breaches, and errors.

An advanced treasury risk management software offers out-of-the-box integrations with all major banks to provide CFOs with rapid access to bank statements. They can parse standard banking formats (BAI2 and MT940) and categorize cash into inflows and outflows. For instance, if a business has 24 total accounts across BofA, Citi, HSBC, and JP Morgan, all with more than 12,000 transactions daily, a treasury system’s bank connectivity features will automatically pull these transactions into cash management daily and categorize and map them as per their regions and entities.

Easy monitoring and managing of financial instruments

Financial instruments are one of the most important elements of cash management and business operations. CFOs need robust tracking systems that help them detect anomalies or discrepancies in financial instruments and identify traces of errors, frauds, or data breaches early to reduce the risk of financial loss.

Treasury systems with automated financial instrument features assist CFOs and treasury teams create, track, and manage debt/investment (D/I) instruments such as bank loans, term loans, and letters of credit in a single place. The system will automatically generate cash flows relating to D/I instruments and update them whenever the interest rate or the market fluctuates.

Dynamic scenario analysis to reduce the market fluctuation shocks

Scenario analysis is a master tool that helps CFOs anticipate all possible scenarios that may impact business operations in the long run. For instance, a manufacturing business may want to find out if their production will reduce or stay the same if the prices of raw materials go up and how much loss they would face.

A good financial risk management software offers a cash flow forecast tool that comes with a robust scenario builder interface that allows CFOs to build scenarios on top of a base forecast and change amounts, percentages, or timing of cash inflows or outflows or FX rates shocks. The business can also analyze the impact each scenario has on various cash flow categories. Additionally, they can also save a version of the forecast or scenario at a point in time as a “snapshot” and access it at any time in the future.

Mitigate Financial Risk With Financial Risk Management Software

One of the core challenges of financial risk mitigation is manual data gathering. We have heard so many businesses complain about so much time being spent on gathering data and information to prepare cash forecasts while aligning with multiple time horizons. Moreover, forecasts that age beyond 30 days often become inaccurate. CFOs need a simple and automated cash flow management and forecasting process that improves the team’s time and efficiency.

The right treasury risk management software will help you compare scenarios, manage debt/investment, and forecast with confidence. The right treasury management tools provide businesses with capabilities for effective cash management and cash flow forecasting. This helps CFOs manage and mitigate credit and liquidity risk with increased forecasting accuracy and enhanced efficiency in handling cash.