Commercial Insights

Taking a strategic view of cash flow and liquidity management

By managing short-term cash flow effectively, businesses can deploy liquidity for longer term strategic growth.

When it comes to cash flow management for businesses, it may be easy to think about the concept as something that applies to the short term. And it’s indeed true that effective cash flow management on a day-to-day basis is essential for businesses to be able to manage expenses such as payroll, rent, inventory and suppliers – as well as be prepared to survive unexpected challenges.

But it’s also important to keep in mind that establishing a practice of effectively managing cash flow in the short term can lead to an improved liquidity position – which can give businesses opportunities to strategically deploy working capital in the longer term.

“Effective cash flow management is the foundation of financial stability and long-term success for businesses,” said Regions Corporate & Institutional Banking Treasury Management Executive Liz Fedor Hancock. “Strategic growth requires capital, and managing cash flow helps ensure that capital will be available when it’s needed in the life cycle of a business.”

The basics of managing cash flow

Effective short-term cash flow management relies on two key metrics: Days Sales Outstanding (DSO) and Days Payable Outstanding (DPO). DSO reflects the average time it takes a company to collect payment after a sale, while DPO measures how long the company takes to pay its own invoices. Regularly monitoring DSO helps identify delays in customer payments, and strategically managing DPO can be an important lever for strengthening overall cash flow.

“Businesses always need to think strategically about how they can improve their cash flow by collecting on receivables faster and extending their timelines for making payments,” said Ginger Blake, Commercial Treasury Management Executive. “One important tool at their disposal for optimizing this is automation through technology, which can play a vital role in reducing DSO and extending DPO.”

Some examples of technology platforms that can help improve these processes include:

• Regions BillerXchange® – Reduces costly paper invoices and associated manual processes to receive payment faster through a branded, customized online billing payment portal.
• Regions CashFlowIQ® – Helps businesses save time, get paid faster and streamline cash management processes through electronically initiating bill payments, sending customized invoices and establishing approval workflows.
• Commercial Card – A commercial card program can help businesses maximize working capital availability by extending DPO, as well as reducing operational costs and risks.
• Integrated Payables – Helps businesses have better payment visibility across the financial supply chain by setting up and tracking payments to suppliers.

The strategic possibilities of effective liquidity management

With a solid approach to managing cash in place, businesses can shift their focus to thinking about improving their overall liquidity position – which can play a role in growth strategies for the future.

“While cash is king for the daily operations of a business, it’s important to think holistically about how it affects the bigger picture, in terms of liquidity management. Excess liquidity can be a powerful lever for strategic business growth when deployed with intentionality,” said Regions Head of Business Capital Amy Barrentine. “When operating from a strong liquidity position, businesses can think about how to use it in ways that are aligned with their strategic objectives. This could be through any number of approaches, including investing in technology to improve core operations, making an acquisition, paying down debt or returning capital to shareholders.”

The key, according to Regions Head of Commercial Banking Nikki Stephenson, is that there’s no one-size-fits-all answer. “While sound cash management should be foundational to any business, how businesses are able to leverage the outcomes depends entirely on their specific medium- to long-term objectives. That’s where it becomes important to turn to trusted banking advisors who can help chart the path forward.”

Stephenson adds that this is contingent upon taking a holistic view. “Executing on business objectives can involve everything from connecting with Treasury Management teams who can help with streamlining daily operations to connecting with bankers who can help strategize and provide capital raising solutions to support major growth initiatives. Once we know where a business wants to go, we can help them each step of the way to get there.”

Ready to help

Regions’ Commercial relationship managers take the time to understand your business, your objectives, and the challenges you face. We provide tailored solutions designed to support your strategy and help you confidently move toward your goals. Connect with us to learn more.