3 days Ago By Cedric Bru, Brand Contributor
When it comes to liquidity management, technology has a core role to play and it’s an area where AI has the potential to deliver a huge amount of value. In a world in which change is the only constant, there is risk but there is also opportunity. Managing the balance between the two has always been a fundamental part of financial leadership and in today’s fluid economic environment getting this balance right requires strategic approach to liquidity management.
Taking advantage of the opportunities that change provides is often about timing. It is not always possible to spot opportunity too far in advance so financial agility is critical to ensure you can act fast. I spend a lot of time talking to our customers and many of them are rethinking liquidity management strategies.
Tariffs are top of mind for a lot of businesses outside the US. The effective tariff rate is now at its highest level since the 1970s. The recent tariffs introduced, if fully implemented, will affect $900 billion worth of goods.
Although they will impact some sectors more than others, few will escape without feeling any impact at all. The potential for increased protectionism is a challenge across a number of areas but not least for the supply chain. Again the key word here is agility but accuracy of insight and the ability to plan effectively against different scenarios becomes critical.
Technology has a core role to play and it’s an area where AI has the potential to deliver a huge amount of value. But technology is not the only lever. I see five key areas which come together to help leaders build an effective liquidity management strategy: For financial leaders having the widest view possible of your data and operations, without increasing complexity, is a core goal.
These mean consolidating as much as possible from a technology and platform perspective but also bringing in tools that provide depth of insight. The wider the view and the more of your data you can consolidate into a single view the better. Once you have that view, AI and machine learning enables you not just to make sense of what you see but also to enhance liquidity management by analyzing historical data and predicting future cash flow trends.
J P Morgan’s recent report revealed there is currently over $707 billion in trapped working capital across industries for S&P 1500 companies alone, up 40% from pre-pandemic levels. Getting your working capital where it needs to be is often a game of incremental improvements rather than one or two big changes. Refining credit policies, improving cash collections, and leveraging a broader range of finance solutions can all help.
In addition to traditional payables and receivables finance we are also seeing companies looking at optimizing inventory management using inventory financing to reduce cash tied up in stock as well as JIT systems, demand-driven models, and predictive analytics to reduce inventory levels. Accurate real-time cash flow forecasting is essential. And again here the further you can see the better.
We see companies are investing more in advanced data analytics tools for real-time cash visibility, enabling informed decisions on capital allocation and operational spending. More and more of these tools have AI built in but getting real value out of these is dependent on the data itself. Again, the wider the net when it comes to data capture, the more valuable the insights.
Scenario planning is where the AI tools really come into their own. The greater the economic volatility the greater the number of scenarios that you need to plan for. This is not just about managing risk however, it is also about spotting opportunity and understanding your capacity to take advantage of it.
Planning is one thing but effective stress testing shows you the resilience of the business and the extent to which it can absorb shocks but also support investment or acquisition. Digital transformation and automation tools are key for navigating liquidity challenges, streamlining processes and improving efficiency. This is nothing new.
Most businesses have been leveraging technology to automate and drive efficiency for decades. What has changed is the level to which you can automate, and the complexity. Traditionally automation has been about speeding up processes.
What generative AI has delivered is the ability to automate insight. Automation doesn’t just deliver data it decodes and analyses it. This means it is not just processes that are faster, but knowledge acquisition and insight itself.
It means we can make accurate decisions faster. The value AI can deliver is something that has clearly not been lost on financial decision-makers. Research we commissioned last year revealed that over half of global finance functions already rely heavily on AI for decision-making.
Strong financial leadership has always been about getting on the front foot. Great leaders don’t just respond to change, they drive it. Volatility understandably creates anxiety but it also creates opportunity.
Effective liquidity management doesn’t just reduce the risks for a business it also puts it in the right place to take advantage of these opportunities. The businesses that thrive as we move through what is shaping up to be an era of unpredictability will be the ones that can spot their moments, and take them..
