Cash flow visibility index study by visa

Cash flow visibility index study by visa

Fintech & Financial Services

Despite cash flow being an important determinant of business profitability, Indian companies have the lowest visibility over it. In this interview, T.R. Ramachandran, Group Country Manager, India and South Asia, Visa, extracts information from the Cash Flow Visibility Index Study by Visa, and shares vital insights on how companies can accelerate this process, and what it means to the CFO

No disputing the fact that cash flow is a very important barometer in weighing the profitability of an organisation. However, despite most organisations identifying cash flow as the most important determinant of business profitability, it has been noted that Indian organizations have the lowest visibility over their cash flow. A 2014 Cash Flow Visibility Index Study by Visa suggests that many businesses lack efficient processes, systems and tools to deliver real-time visibility and predictability.  In this interview, T.R. Ramachandran, Group Country Manager, India and South Asia, Visa, talks about the purpose of this study and what it means to the CFO.

What was the trigger for Visa to take up this study? What is the purpose of this study?

The Atradius Payments Barometer 2013 and 2014 had clearly identified cash flow as the single most important factor affecting the profitability of a company. Whether you are a small business or a large corporate, adequate cash flow and the ability to predict your cash obligation drives business and business decision making. Visa commissioned the 2014 Cash Visibility Index study to better understand challenges that organizations may face with managing cash flow and ensuring visibility and predictability despite their admitted importance for a business to grow. The research specifically assessed real levels of cash visibility and electronic footprint of leading corporations across different markets and industries; the challenges they face in their quest to attain optimum cash visibility, in order to ensure that they can meet their business obligations and make decisions on reinvestment.

Whether a corporation is buying or supplying, digitization of payments becomes the critical step in ensuring efficiency, accuracy in payment and establishing reliable data on cash situation. This is why Visa has a significant focus on digitization of B2B payments. In collaboration with established global technology solutions providers such as cloudBuy, Kofax, Invapay and Spendvision (which is now known as Freedom), Visa works with financial institutions to give businesses a comprehensive and effective approach in managing their financial processes and addresses the challenges of visibility and predictability. For example, Invapay helps to facilitate buyer initiated electronic payments by onboarding suppliers who do not have the capability to receive payments. The solutions, individually or collaboratively, remove friction in payment processes, thus achieving efficiencies and achieving business predictability.

What are the findings? Based on the findings what are the recommendations for the CFO?

The findings have been depicted in the following Cash Flow Visibility index which states that:

Indian corporations have been identified as having the lowest visibility over their cash flow, with many businesses lacking efficient processes, systems and tools to deliver real-time visibility and predictability. This finding comes despite most organizations clearly identifying cash flow as the single most important determinant of business profitability.

Key findings from the study show that 95 percent of companies in India do not have 60-day visibility of their cash obligations and 87 percent of them do not even have a 30-day visibility. This is significantly behind the rest of the region, where only 81 percent of companies are cited as not having 60-day cash flow visibility and 50 percent cited as not having a 30-day visibility. Given the lack of the right processes, systems and tools, these companies require time to manually work on and generate cash flow and analysis reports. Hence, these reports may be at least 10 days old. In fact, the study revealed that 97.5 percent of leading companies in India do not have access to analytic reports that provide real-time visibility.

Another key finding from the study shows that Indian organizations spend up to 480 man hours per week manually entering data and preparing cash assessment and analysis reports because of the lack of appropriate tools and systems. This is again well behind the regional average of 253 man hours a week to perform similar tasks.

The study also highlights the low adoption of electronic collection and payable platforms in many businesses. Only 15 per cent of companies in India use electronic collection platforms to manage their revenues, and close to 44 per cent of a corporate’s operations is managed on spreadsheets. The lack of real-time digitized data of receivables and payables means that businesses are unable to predict their future cash obligations accurately.

In my opinion, the most baffling part of the findings is that several corporate CFOs in India have little confidence in the financial data that is generated by existing systems and their finance departments. One would hence question how critical business decisions are made. As long as payments are cash or cheque-based and cannot be reconciled without manual intervention, this problem will persist. The confidence in data will not improve. So, as a first step, we would ask CFOs to consider migrating to a digital payment and collection platform that generates reports in real time. These solutions are cost effective, readily available and easy to implement. Visa sets up both the buyer and the seller for electronic payments hence, ensuring that the benefits of digital payment are realized sooner than later.

If 95 per cent of leading corporations in India do not have 60-day cash flow visibility, what is the ideal period? And what should be the ideal cash flow visibility that start-ups that are one year into their operations maintain?

Large corporates, which the survey assessed, plan and report by the quarter. It is reasonable that a CFO expects to be able to predict his/her cash flow obligations 90 days ahead. Whether it is a large corporate or a startup, the question is, “do you want to play on the big stage?” Cash flow visibility and business predictability become hygiene factors, not a nice-to-have, if you wish to invest and reinvest in growing your business. Real-time digitized data from a single, reliable and clean source is critical in achieving profitability objectives for businesses. Our discussions with finance professionals suggest that their challenges in obtaining such data may arise from not having deployed these systems or a lack of optimization of existing systems. Finance professionals, whether you are in a small set up or a large corporation, also hesitate to source for new solutions due to the perceived time and resource investment that they believe is required. However, easy-to-deploy and cost effective solutions are available to companies, and they can start by changing the way businesses pay and get paid. A 16-digit account plays a pivotal role in this process change.

How is the CFO empowered due to cash visibility?

The findings from the study demonstrate that Indian businesses are clearly in need of solutions that will greatly enhance their cash management processes. Real-time visibility and predictability is a must-have for all CFOs and treasurers so that they can make accurate decisions on reinvestments, or expansion of their businesses, both leading to better profitability for their companies.


 

Key Findings from 2014 Cash Flow Visibility Index

 

India

Region

Do not have 60 Day cash visibility

95%

81%

Do not have 30 Day cash visibility

87%

50%

Do not have up-to-date cash flow analytics reports that provide real time cash visibility

 97.5%

92%

Man hours spent analyzing and assessing data

480

253

Use of electronic collection platforms

15%

50%

Countries in the region comprise of six countries namely Australia, Hong Kong, India, Japan, Malaysia and Singapore

Poornima Kavlekar has been associated with The Smart CEO since the time of launch and is the Consulting Editor of the magazine. She has been writing for almost 20 years on a cross section of topics including stocks and personal finance and now, on entrepreneurship and growth enterprises. She is a trained Yoga Teacher, an avid endurance Cyclist and a Veena player.

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